STAFFMARK INC, S-1/A, 1997-08-06

STAFFMARK INC
S-1/A, 1997-08-06
HELP SUPPLY SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997

REGISTRATION NO. 333-32371

================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
STAFFMARK, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<C> <C> <C>
DELAWARE 7363 71-0788538
(State or other jurisdiction (Primary Standard Industrial (I.R.S. employer
of incorporation or Classification Code Number) identification no.)
organization)
</TABLE>

302 EAST MILLSAP ROAD
FAYETTEVILLE, ARKANSAS 72703
(501) 973-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

GORDON Y. ALLISON, ESQ.
EXECUTIVE VICE PRESIDENT -- GENERAL COUNSEL
STAFFMARK, INC.
302 EAST MILLSAP ROAD
FAYETTEVILLE, ARKANSAS 72703
(501) 973-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies of all correspondence to:

<TABLE>
<C> <C>
C. DOUGLAS BUFORD, JR., ESQ. GLENN W. STURM, ESQ.
FRED M. PERKINS III, ESQ. JON H. KLAPPER, ESQ.
WRIGHT, LINDSEY & JENNINGS NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
200 WEST CAPITOL, SUITE 2200 999 PEACHTREE STREET, N.E., SUITE 1400
LITTLE ROCK, ARKANSAS 72201 ATLANTA, GEORGIA 30309
(501) 371-0808 (404) 817-6000
(501) 376-9442 (FAX) (404) 817-6050 (FAX)
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE
OR JURISDICTION.

SUBJECT TO COMPLETION, DATED AUGUST 6, 1997

PROSPECTUS

3,500,000 SHARES
[STAFFMARK, INC. LOGO]

COMMON STOCK

Of the 3,500,000 shares of common stock, par value $0.01 per share (the
"Common Stock") offered hereby (the "Offering"), 3,215,000 shares are being sold
by StaffMark, Inc. (the "Company") and 285,000 shares are being sold by certain
stockholders of the Company (the "Selling Stockholders"). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders.

The Common Stock is traded on The Nasdaq Stock Market's National Market
(the "Nasdaq National Market") under the symbol "STAF." On August 5, 1997, the
last reported sale price of the Common Stock on the Nasdaq National Market was
$26.88 per share. See "Price Range of Common Stock and Dividend Policy."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
====================================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
==================================================================================================================
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting estimated offering expenses of $2,000,000 payable by the
Company.

(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 525,000 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ , the total Proceeds to Company
will be $ , and the total Proceeds to Selling Stockholders will be
$ . See "Principal and Selling Stockholders" and "Underwriting."
---------------------

The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject orders
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that certificates for the shares of Common Stock will be
available for delivery on or about , 1997.
---------------------

LOGOS
, 1997
<PAGE> 3

[INSIDE FRONT PAGE OF PROSPECTUS]

The Inside Front Cover Page of the Prospectus contains a map of the Company's
operating regions, including states in which the Company operates and a chart
showing growth in the number of branch offices from 1993 to June 30, 1997.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the pro forma and
historical financial statements and the related notes thereto appearing
elsewhere in this Prospectus. Prospective investors should carefully consider
the matters set forth under "Risk Factors" herein. All references to the
"Company" or "StaffMark" refer to StaffMark, Inc. and where appropriate, its
subsidiaries and their respective operations and include the Company's
predecessors. Unless otherwise indicated, the information in this Prospectus
assumes no exercise of the Underwriter's over-allotment option or options
granted or reserved under the Company's 1996 Stock Option Plan. Industry
information used in this Prospectus was obtained from industry publications that
the Company believes to be reliable, but such information has not been
independently verified.

THE COMPANY

StaffMark is a leading provider of diversified staffing, professional and
consulting services to businesses, professional and service organizations,
medical niches and governmental agencies. The Company offers these services
through over 160 branches located in 21 states, Canada and the United Kingdom.
Since the Company's initial public offering in October 1996 (the "Initial Public
Offering"), the Company has grown both internally and through the acquisition of
15 additional staffing and professional service companies with 68 branches and
1996 revenues of approximately $168.4 million. The Company believes that this
balance of internal growth and selective acquisitions will best allow the
Company to capitalize on its growth opportunities. For the year ended December
31, 1996 and the six months ended June 30, 1997, the Company's combined revenues
and operating income were $198.4 million and $11.2 million, and $160.0 million
and $9.7 million, respectively.

The Company's services are provided through three divisions: Commercial,
Professional and Information Technology ("Professional/IT") and Specialty
Medical. The Commercial division provides clerical and light industrial staffing
services and generated approximately 88.1% and 76.4% of the Company's combined
revenues for the year ended December 31, 1996 and for the six months ended June
30, 1997, respectively. The Professional/IT division provides information
technology staffing, consulting and support services, as well as professional
and technical services and generated 4.5% and 16.8% of the Company's combined
revenues for the year ended December 31, 1996 and for the six months ended June
30, 1997, respectively. The Specialty Medical division provides clinical trial
support services, medical office staffing, physical and occupational therapists
and speech pathologists and generated 7.4% and 6.8% of the Company's combined
revenues for the year ended December 31, 1996 and for the six months ended June
30, 1997, respectively.

The Company's operating strategy is to continue to: (i) develop long-term
relationships with its customers as a primary provider of quality, customized
and diversified staffing and professional services; (ii) adopt on a Company-wide
basis the best practices, policies and procedures of existing StaffMark
operations and newly acquired companies; (iii) increase operating efficiencies
and provide a strong level of corporate support by combining a number of general
and administrative functions at the corporate level and by reducing or
eliminating redundant functions; and (iv) maintain a decentralized
entrepreneurial environment that rewards performance and attracts and retains
self-motivated, achievement-oriented individuals.

The Company's internal growth strategy consists of the following key
components: (i) focusing on further penetration in existing geographic markets
by continuing to provide high-quality services, by enhancing and expanding new
services and by spinning off new branch offices; (ii) expanding and
cross-developing the Professional/IT and Specialty Medical services offered by
the Company and increasing the percentage of revenues and gross profits derived
from these divisions; and (iii) increasing Vendor-on-Premises ("VOP")
relationships which the Company believes provide a more stable source of
revenues and attractive operating profits. The Company believes that it is
successfully implementing its internal growth strategy as each of its three
operating divisions achieved growth rates in excess of 20% for the six months
ended June 30, 1997 as compared to the same period in 1996.

The Company's acquisition strategy is to acquire and integrate independent
staffing and professional service companies with strong management, profitable
operating results and recognized local and regional
3
<PAGE> 5

presence. The Company pursues acquisitions that expand the geographic scope of
its operations, increase its penetration of existing markets, offer
complementary services and expand the percentage of revenues generated by the
Professional/IT and Specialty Medical divisions.

Since the Initial Public Offering in October 1996, the Company has
implemented this strategy and completed 15 acquisitions (the "Post-IPO
Acquisitions"). Certain information related to such acquisitions is summarized
in the following table:

<TABLE>
<CAPTION>
1996
DATE OF REVENUES BRANCHES
ACQUIRED COMPANY(1) ACQUISITION (IN MILLIONS)(2) ACQUIRED HEADQUARTERS SERVICES PROVIDED
- ------------------- ----------- ----------------- ---------- -------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Technology Source.. Nov. 1996 $ 6.8 1 St. Louis, MO Professional/IT
Advantage........ Dec. 1996 3.6 2 Spartanburg, SC Commercial
Tom Bain......... Dec. 1996 3.6 1 Brentwood, TN Commercial, Professional/IT
Advance.......... Feb. 1997 6.3 1 Memphis, TN Commercial
MRIC............. Feb. 1997 2.5 2 Vancouver, BC Specialty Medical
Flexible......... Mar. 1997 49.3 40 Fort Wayne, IN Commercial, Professional/IT
Global........... Apr. 1997 17.2 1 Walnut Creek, CA Professional/IT
Lindenberg....... Apr. 1997 18.0 4 St. Louis, MO Professional/IT
TPS/Furr......... May 1997 4.5 1 Monroe, NC Commercial
HR Alternatives... Jun. 1997 8.4 8 Kingsport, TN Commercial
Kleven........... Jun. 1997 5.0 1 Lexington, MA Professional/IT, Commercial
Sterling......... Jun. 1997 19.0 2 Phoenix, AZ Commercial, Professional/IT
Baker Street..... Jul. 1997 11.0 1 Houston, TX Professional/IT, Commercial
Temp Technology.. Jul. 1997 7.5 2 Portland, OR Commercial
EBS.............. Aug. 1997 5.7 1 Dallas/Ft. Worth, TX Professional/IT
------- --
Total.......... $168.4 68
======= ==
</TABLE>

- ---------------

(1) See "Business -- Post-IPO Acquisitions" for the full legal name of the
acquired companies.

(2) The revenue amounts presented in the table are for the fiscal year ended
December 31, 1996 for all of the referenced entities, other than with respect to
Baker Street which is for the 12 months ended May 31, 1997 and EBS which is for
the 12 months ended June 30, 1997. The acquisition of Baker Street will be
accounted for as a pooling-of-interests, while all other acquisitions have been
accounted for as purchases. The revenues for 1996 were not audited except for
Flexible, Global and Lindenberg. Substantially all of the 1996 revenues
represent a period of time when the companies were operating independently from
the Company and, thus, are not included in the Company's 1996 revenues. See
"Business -- Post-IPO Acquisitions."

The staffing industry has grown rapidly in recent years as companies have
utilized supplemental employees to control personnel costs and to meet
specialized or fluctuating personnel needs. According to the National
Association of Temporary and Staffing Services, the U.S. market for staffing
services grew at a compound annual growth rate of approximately 18% from $20.4
billion in revenues in 1991 to $47.1 billion in 1996. Furthermore, according to
Staffing Industry Report, revenues from the domestic information technology
sector in 1996 are estimated to have been $12.0 billion, and grew at a compound
annual rate of approximately 20% over the past five years. The Company believes
the staffing industry is highly fragmented with over 6,000 staffing companies
and 2,500 Professional/IT companies. Although the industry is experiencing
increasing consolidation, largely in response to opportunities to provide
comprehensive supplemental staffing solutions to regional and national accounts,
the Company believes that there are numerous attractive acquisition targets
available.

The Company maintains its principal executive offices at 302 East Millsap
Road, Fayetteville, Arkansas 72703. Its telephone number is (501) 973-6000. The
Company maintains various sites on the Internet's world wide web. Information
contained in the Company's world wide web sites shall not be deemed to be part
of this Prospectus.
4
<PAGE> 6

RECENT DEVELOPMENTS

The Company acquired Temp Technology, Inc. ("Temp Technology") on July 31,
1997. Through two offices located in the Portland, Oregon area, Temp Technology
provides electronics assembly, light industrial, office/clerical, and
information technology staffing services. Temp Technology had 1996 revenues of
approximately $7.5 million and operates in the Commercial division.

The Company acquired Expert Business Systems, Incorporated ("EBS") on
August 4, 1997. EBS, located in the Dallas/Fort Worth metropolitan area provides
information technology services, specializing in help desk support, distributed
services and application developments. EBS has developed a model for providing
information technology outsourcing services to a variety of businesses. EBS,
which had revenues for the 12 months ended June 30, 1997 of approximately $5.7
million, operates in the Professional/IT division.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................. 3,215,000 shares
Common Stock offered by the Selling Stockholders.... 285,000 shares
Common Stock to be outstanding after the 18,134,296 shares
offering(1).......................................
Use of proceeds by the Company...................... To repay certain debt and for working
capital and general corporate purposes
including future acquisitions. See "Use
of Proceeds."
Nasdaq National Market symbol....................... STAF
</TABLE>

- ---------------

(1) Excludes approximately 1,265,000 shares of Common Stock reserved for
issuance upon exercise of outstanding options and 435,000 shares reserved
for future option grants under the Company's stock option plan and 300,000
shares reserved for issuance under the Company's Employee Stock Purchase
Plan. See "Management -- 1996 Stock Option Plan" and "-- Employee Stock
Purchase Plan."
5
<PAGE> 7

SUMMARY FINANCIAL DATA

StaffMark acquired in separate transactions (the "Mergers"), simultaneously
with the closing of the Initial Public Offering, the Founding Companies (defined
below). Pursuant to the requirements of the Securities and Exchange Commission's
Staff Accounting Bulletin ("SAB") No. 97, which was issued and became effective
July 31, 1996, Brewer Personnel Services, Inc. ("Brewer") was designated, for
financial reporting purposes, as the acquirer of Prostaff Personnel, Inc. and
its related entities ("Prostaff"), Maxwell Staffing, Inc. and its related
entities ("Maxwell"), HRA, Inc. ("HRA"); First Choice Staffing, Inc. ("First
Choice"); and Blethen Temporaries, Inc. and its related entities ("Blethen")
(collectively, the "Other Founding Companies" and together with Brewer, the
"Founding Companies"). Accordingly, the primary financial information presented
below relates to Brewer through the date of the Initial Public Offering and to
StaffMark on a consolidated basis for all periods subsequent to the Initial
Public Offering. The Summary Financial Data should be read in conjunction with
the Company's consolidated financial statements and the related notes thereto
appearing elsewhere in this Prospectus as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which includes a
presentation and discussion of the results of operations on a combined basis for
the three years ended December 31, 1996 and for the six months ended June 30,
1997. For a discussion of pro forma operating results, see the StaffMark, Inc.
Unaudited Pro Forma Financial Statements and the related notes thereto appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................................. $27,894 $43,874 $104,476 $ 30,556 $159,987
Cost of services.......................................... 22,906 35,115 81,607 24,028 124,515
------- ------- -------- -------- --------
Gross profit.............................................. 4,988 8,759 22,869 6,528 35,472
Operating expenses:
Selling, general and administrative..................... 3,483 5,804 14,623 4,445 24,006
Depreciation and amortization........................... 256 591 1,374 566 1,749
------- ------- -------- -------- --------
Operating income.......................................... 1,249 2,364 6,872 1,517 9,717
Interest expense.......................................... 92 801 1,376 880 507
Net income................................................ 1,177 1,587 4,023 634 5,583
PRO FORMA:(1)
Revenues(2)............................................... $266,074 $123,432 $173,298
Operating income(3)....................................... 13,887 5,049 10,210
Net income(3)(4).......................................... 6,664 2,067 5,668
Primary net income per share.............................. $ 0.64 $ 0.23 $ 0.39
Fully diluted net income per share........................ $ 0.64 $ 0.23 $ 0.38
Primary weighted average shares outstanding............... 10,444 9,174 14,562
Fully diluted weighted average shares outstanding......... 10,444 9,174 14,816
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------
AS
ACTUAL ADJUSTED(5)
-------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 24,088 $ 60,833
Total assets......................................................................... 141,908 178,653
Long-term debt....................................................................... 43,430 --
Stockholders' equity................................................................. 75,475 155,650
</TABLE>

- ---------------

(1) See the StaffMark, Inc. Unaudited Pro Forma Financial Statements and the
related notes thereto appearing elsewhere in this Prospectus for information
relating to the pro forma results of operations for the year ended December
31, 1996 and the six months ended June 30, 1997 and 1996.

(2) Adjusted to reflect: (i) Brewer's October 1996 acquisition of the Other
Founding Companies; (ii) Brewer's February 1996 acquisition of On Call
Employment Services, Inc. ("On Call"); (iii) StaffMark's March 1997
acquisition of Flexible Personnel, Inc., Great Lakes Search Associates, Inc.
and HR America, Inc. (collectively "Flexible"); and (iv) StaffMark's April
1997 acquisition of Global Dynamics, Inc. ("Global"), as if such
acquisitions had occurred at the beginning of the periods presented.

(3) Adjusted to reflect: (i) the acquisitions discussed in Note 2 above; (ii)
the adjustment to compensation expense for the difference between historical
compensation paid to certain previous owners of the Founding Companies,
Flexible and Global and the employment contract compensation negotiated in
conjunction with the Mergers and the respective acquisitions (the
"Compensation Differential"); and (iii) the amortization expense relating to
the intangible assets recorded in conjunction with the acquisitions
discussed in Note 2 above.

(4) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies, Flexible and Global as S Corporations prior to the
consummation of the acquisitions discussed in Note 2 above and the tax
impact of the Compensation Differential. Pro forma income tax expense is
based upon a combined effective tax rate of 39%, adjusted for the impact of
nondeductible goodwill amortization.

(5) Adjusted for the sale of 3,215,000 shares of common stock of the Company
offered hereby at an assumed public offering price of $26.88 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

6
<PAGE> 8

RISK FACTORS

An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information contained
in this Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing shares of the Common
Stock offered hereby.

ABILITY TO ACHIEVE AND MANAGE GROWTH; ACQUISITION RISKS. The Company has
experienced significant growth, principally through acquisitions, internal
growth and opening new offices. There can be no assurance that the Company will
be able to expand its market presence in its current locations or successfully
enter other markets through acquisitions or the opening of new offices. The
Company's ability to continue its growth and profitability will depend on a
number of factors, including the availability of capital to fund acquisitions,
existing and emerging competition, the ability to maintain sufficient profit
margins despite pricing pressures and the strength of demand for temporary
associates, consultants and professionals in the Company's markets. The Company
must also manage costs in a changing regulatory environment, adapt its
infrastructure and systems to accommodate growth and recruit and train
additional qualified personnel. Additionally, there can be no assurance that the
Company will be able to successfully identify suitable acquisition candidates
(particularly Professional/IT and Specialty Medical candidates), complete
acquisitions or integrate acquired businesses into its operations. Once
integrated, acquisitions may not achieve acceptable levels of revenue or
profitability or otherwise perform as expected. Acquisitions also involve
special risks, including risks associated with unanticipated problems,
liabilities and contingencies, diversion of management attention and possible
adverse effects on earnings resulting from increased goodwill amortization,
increased interest costs, the issuance of additional securities and difficulties
related to the integration of the acquired business. The Company is unable to
predict whether or when any prospective acquisition candidate will become
available or the likelihood that any acquisition will be completed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Internal Growth
Strategy" and "-- Acquisition and Integration Strategy."

EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY. Demand for the Company's
staffing services is significantly affected by the general level of economic
activity and unemployment in the United States. When economic activity
increases, temporary employees are often added before full-time employees are
hired. However, as economic activity slows, many companies reduce their
utilization of temporary employees prior to undertaking layoffs of full-time
employees. In addition, the Company may experience more competitive pricing
pressure during periods of economic downturn. Therefore, any economic downturn
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

FLUCTUATIONS IN OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY RESULTS. The
Company's operating results have fluctuated in the past and will fluctuate in
the future based on many factors. These factors include, among others, changes
in the regulatory environment, failure to adequately integrate acquired
companies, fluctuations in the general economy, increased competition, the
opening of new branch offices, changes in operating expenses, expenses related
to acquisitions, and the potential adverse effect of acquisitions. Due to these
and any unforeseen factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such an event, the price of the Common Stock would
likely be materially adversely affected. In view of the Company's recent
significant growth, the Company believes that period-to-period comparisons of
its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance. Because the Company only derives
revenue when its temporary associates, consultants and professionals are
actually working, its operating results are adversely affected when client
facilities close due to holidays or inclement weather. The Company generally
experiences lower revenues, operating income and net income during the first and
fourth quarters due to certain holidays, weather conditions and seasonal
vacation patterns. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

DEPENDENCE ON AVAILABILITY OF QUALIFIED TEMPORARY PERSONNEL. The Company
depends on its ability to attract, train and retain personnel who possess the
skills and experience necessary to meet the staffing requirements of its
clients. Competition for individuals with proven skills in certain areas,
particularly in the professional/information technology and specialty medical
fields, is intense. The Company competes in

7
<PAGE> 9

several markets in which unemployment is relatively low thereby increasing
competition for employees. The Company must continually evaluate, train and
upgrade its base of available personnel to keep pace with clients' needs. There
can be no assurance that qualified personnel will continue to be available to
the Company in sufficient numbers and on terms of employment acceptable to the
Company. The inability to attract and retain qualified personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Personnel -- Full Time
Employees/Temporary Associates/Professionals."

COMPETITIVE MARKET. The staffing industry is highly competitive with
limited barriers to entry. The Company competes for employees and clients in
national, regional and local markets with full-service and specialized temporary
staffing service businesses. A significant number of competitors have greater
marketing, financial and other resources and more established operations than
the Company. Price competition in the staffing industry is intense, particularly
for the provision of commercial personnel, and pricing pressures from
competitors and customers are increasing. The Company expects that the level of
competition will remain high in the future, which could limit the Company's
ability to maintain or increase its market share or maintain or increase gross
margins, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- The
Staffing and Information Technology Services Industry" and "-- Competition."

INCREASED EMPLOYEE COSTS. The Company is required to pay unemployment
insurance premiums and workers' compensation for its temporary employees.
Unemployment insurance premiums may increase as a result of, among other things,
increased levels of unemployment and the lengthening periods for which
unemployment benefits are available. Workers' compensation costs may increase as
a result of changes in the Company's experience rating or applicable laws.
Although management believes its workers' compensation coverage amounts are
adequate, there can be no assurance that the Company's actual future workers'
compensation claims will not exceed the coverage amounts. The Company's workers'
compensation insurance premiums are subject to retroactive increases based upon
audits of the Company's employee classification practices and other data
provided to the insurance carrier. The Company has retained the services of an
independent third-party administrator and an independent actuary to assist the
Company in establishing appropriate reserves for the uninsured portion of claims
(up to the deductible amount), but such reserves are only estimates of future
payments relating to claims and are based upon limited prior experience.
Although management believes its recorded reserve is adequate, there can be no
assurance that the Company's actual future workers' compensation obligations
will not exceed the amount of its workers' compensation reserve. The Company may
incur costs related to workers' compensation claims at a higher rate due to such
causes as higher than anticipated losses from known claims or an increase in the
number and severity of new claims. See "Business -- Personnel -- Workers'
Compensation Program."

INTANGIBLE ASSETS. As of June 30, 1997, approximately $86.7 million, or
61%, of the Company's total assets were intangible assets. These intangible
assets primarily represent amounts attributable to goodwill recorded in
connection with the Company's acquisitions. Any impairment in the value of such
assets could have a material adverse effect on the Company's financial condition
and results of operations.

RISK OF GOVERNMENT REGULATIONS AND LEGISLATIVE PROPOSALS. The Company's
costs could increase if there are any material changes in government
regulations. Recent federal and certain state legislative proposals have
included provisions extending health insurance benefits to employees not
presently receiving such benefits. Due to the wide variety of national and state
proposals currently under consideration, the impact of such proposals cannot be
predicted. There can be no assurance that the Company will be able to increase
the fees charged to its clients in a timely manner and sufficient amount to
cover increased costs related to any new benefits that may be extended to
temporary employees. It is not possible to predict whether other legislation or
regulations affecting the Company's operations will be proposed or enacted at
the federal or state level. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Regulation."

GOVERNMENT REGULATION OF IMMIGRATION. Certain of the Company's Specialty
Medical professionals and Professional/IT consultants are foreign nationals
working in the United States under H-1B permits. Accordingly, both the Company
and these foreign nationals must comply with United States immigration laws. The
inability of the Company to obtain H-1B permits for certain of its employees in
sufficient quantities

8
<PAGE> 10

or at a sufficient rate could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, Congress
and administrative agencies with jurisdiction over immigration matters have
periodically expressed concerns over the levels of legal and illegal immigration
into the U.S. These concerns have often resulted in proposed legislation, rules
and regulations aimed at reducing the number of work permits that may be issued.
Any changes in such laws making it more difficult to hire foreign nationals or
limiting the ability of the Company to retain foreign employees could require
the Company to incur additional unexpected labor costs and expenses. Any such
restrictions or limitations on the Company's hiring practices could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Regulation."

INDUSTRY RISKS. Providers of temporary staffing and professional services
generally place their employees in the workplace of other businesses. An
attendant risk of such activity includes possible claims of discrimination and
harassment, employment of illegal aliens and other similar claims. Management
has adopted and implemented policies and guidelines to reduce the Company's
exposure to these risks. However, a failure by any Company employee to follow
these policies and guidelines may result in negative publicity, injunctive
relief and the assessment against the Company of damages or fines. Moreover, in
certain circumstances, the Company may be held responsible for the actions at a
workplace of persons not under the direct control of the Company. Temporary
staffing and professional service providers are also affected by fluctuations in
the business of their clients. Interruptions in the business of its clients can
adversely affect the Company's business. For example, inclement weather or
natural disasters, which may require clients to close or reduce their hours of
operation, could adversely affect the Company's business, financial condition
and results of operations.

RISKS RELATED TO ACQUISITION FINANCING. The Company currently intends to
continue to finance future acquisitions by using cash and shares of the
Company's Common Stock for all or a portion of the consideration to be paid. In
the event that the Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are unwilling to accept the Company's Common
Stock as part of the consideration for their businesses, the Company may be
required to utilize its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources to pursue acquisitions, its growth could be limited unless it is able
to obtain additional capital through debt or equity financing. Although the
Company has established a $100 million credit facility, there can be no
assurance that the Company will be able to obtain all the financing it will need
in the near future on terms the Company deems acceptable. The inability to
acquire such financing, if needed, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Acquisition and
Integration Strategy."

RELIANCE ON KEY PERSONNEL. The Company is highly dependent on its
management. The Company believes that its success will depend to a significant
extent upon the efforts and abilities of the key executives of the Company.
Furthermore, the Company will likely be dependent on the senior management of
companies that may be acquired in the future. If any of these individuals are
unable to continue in their position with the Company, or if the Company is
unable to attract and retain other skilled employees, the Company's business,
financial condition and results of operation could be materially adversely
affected. See "Management."

DISCRETION OF MANAGEMENT CONCERNING USE OF PROCEEDS. The Company has
allocated approximately $52.4 million of the net proceeds of this Offering for
specific identified purposes, with the remainder to be used for working capital
and for general corporate purposes, including possible acquisitions.
Accordingly, management will have unlimited discretion in spending a large
percentage of the proceeds to be received by the Company. There can be no
assurance that the Company will deploy such proceeds in a manner which enhances
stockholder value. See "Use of Proceeds."

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Upon completion of the
Offering, the Company's executive officers and directors beneficially will own
approximately 26.5% of the outstanding shares of Common Stock. These persons
acting together would likely be able to elect a sufficient number of directors
to control the Board of Directors of the Company and to approve or disapprove
any matter submitted to a vote of stockholders. See "Principal and Selling
Stockholders."

9
<PAGE> 11

POTENTIAL LIABILITY AND INSURANCE; LEGAL PROCEEDINGS. The provision of
Professional/IT services and Specialty Medical services entails an inherent risk
of professional malpractice and other similar claims. The Company maintains
insurance coverage that it believes is adequate both as to risks and amounts.
The Company believes that such insurance will extend to professional liability
claims that may be asserted against temporary associates, consultants and
professionals of the Company. In the ordinary course of its business, the
Company is periodically threatened with or named as a defendant in various
lawsuits, including discrimination and harassment and other similar claims,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

DIVIDEND POLICY; RESTRICTIONS ON PAYMENT. The Company anticipates that for
the foreseeable future its earnings will be retained for the operation and
expansion of its business and that it will not pay cash dividends. In addition,
the Company's credit facility limits the payment of cash dividends without the
lender's consent. See "Price Range of Common Stock and Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE. The market price of the Common Stock could
be adversely affected by the sale of substantial amounts of Common Stock in the
market following the Offering. Following the expiration and/or release of
various lock-up periods, restricted securities held by certain stockholders will
be available for public resale in accordance with Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act") or by operation of applicable
registration rights agreements between the holders of such restricted securities
and the Company. See "Shares Eligible for Future Sale."

VOLATILITY OF STOCK PRICE. From time to time, there may be significant
volatility in the market price for the Common Stock. Quarterly operating results
of the Company or of other temporary staffing and service companies, changes in
general conditions in the economy, analyst's earnings estimates, the financial
markets or the staffing industry, natural disasters or other developments could
cause the market price of the Common Stock to fluctuate substantially. In
addition, in recent years the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance. See "-- Fluctuations in Operating Results; Fluctuations
in Quarterly Results" and "Price Range of Common Stock and Dividend Policy."

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The Board of Directors
of the Company is empowered to issue preferred stock in one or more series
without stockholder action. The existence of this "blank-check" preferred stock
provision could render more difficult or discourage an attempt to obtain control
of the Company by means of a tender offer, merger, proxy contest or otherwise.
Certain provisions of the Delaware General Corporation Law may also discourage
takeover attempts that have not been approved by the Board of Directors. See
"Description of Capital Stock."

FORWARD-LOOKING STATEMENTS. This Prospectus contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements made with respect to the
results of operations and businesses of the Company. When used in this
Prospectus, the words "may," "should," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements involve certain
risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated, projected, forecast, estimated or budgeted
in such forward-looking statements include, among others, the following
possibilities: (i) heightened competition, including specifically the
intensification of price competition, the entry of new competitors, and new
services by new and existing competitors; (ii) failure to identify, acquire or
profitably manage additional businesses or successfully integrate acquired
businesses, if any, into the Company without substantial costs, delays or other
operational or financial problems; (iii) failure to obtain new customers or
retain existing customers; (iv) inability to carry out marketing and sales
plans; (v) loss of key executives; (vi) general economic and business conditions
which are less favorable than expected; and (vii) unanticipated changes in
industry trends. Such forward-looking statements may be found in this "Risk
Factors" section and under the captions "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as in this Prospectus generally. Actual events or results
may differ materially from those discussed in the forward-looking statements as
a result of various factors, including, without limitation, the risk factors set
forth herein and the matters set forth in this Prospectus generally.

10
<PAGE> 12

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,215,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of
$26.88 per share are estimated to be approximately $80.2 million ($93.6 million
if the Underwriters' over-allotment option is exercised in full), after
deducting the underwriting discount and estimated offering expenses payable by
the Company.

Since the Initial Public Offering, the Company has expended a total of
approximately $69.7 million in cash related to its 15 Post-IPO Acquisitions. The
Company intends to use approximately $52.4 million of the net proceeds of this
Offering to repay indebtedness outstanding under its line of credit facility
(the "Credit Facility") with Mercantile Bank National Association ("Mercantile")
which was incurred primarily in connection with these acquisitions. The
indebtedness under the Credit Facility bears interest at variable rates
(averaging approximately 6.9% at June 30, 1997) and requires quarterly principal
repayments beginning in January 1999 and continuing through maturity in April
2002. The remaining net proceeds from the Offering of approximately $27.8
million will be used for working capital and for general corporate purposes,
including the possible acquisition of staffing and professional service
companies. The Company does not have any present binding agreements or
commitments in place but does intend to evaluate and continue discussions with
potential strategic acquisitions.

Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in investment grade, interest-bearing
securities. The Company will not receive any proceeds from the sale of shares of
Common Stock offered hereby by the Selling Stockholders. See "Principal and
Selling Stockholders."

CAPITALIZATION

The following table sets forth the actual long-term debt and capitalization
of the Company at June 30, 1997, and as adjusted to reflect the issuance of
3,215,000 shares of Common Stock of the Company offered hereby at an assumed
offering price of $26.88 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt(1)........................................... $ 43,430 $ --
-------- --------
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized; none issued or outstanding................. -- --
Common Stock, $.01 par value, 26,000,000 shares
authorized; 14,509,634 shares issued and outstanding,
actual; and 17,724,634 shares issued and outstanding,
as adjusted(2)......................................... 145 177
Additional paid-in capital................................ 67,150 147,293
Retained earnings......................................... 8,180 8,180
-------- --------
Total stockholders' equity........................ 75,475 155,650
-------- --------
Total capitalization......................... $118,905 $155,650
======== ========
</TABLE>

- ------------------

(1) For a description of the Company's long-term debt, see Note 7 of Notes to
the Company's consolidated financial statements.

(2) Excludes approximately 1,265,000 shares of Common Stock reserved for
issuance upon exercise of outstanding options and 435,000 shares reserved
for future option grants under the Company's stock option plan and 300,000
shares reserved for issuance under the Company's Employee Stock Purchase
Plan. See "Management -- 1996 Stock Option Plan" and "-- Employee Stock
Purchase Plan."

11
<PAGE> 13

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Since its Initial Public Offering (at $12.00 per share), the Company's
Common Stock has traded on the Nasdaq National Market under the symbol "STAF."
The following table sets forth the range of high and low closing prices for the
Common Stock as reported on the Nasdaq National Market for the periods
indicated.

<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1996
Third Quarter (from September 27, 1996)..................... $14.13 $14.00
Fourth Quarter.............................................. 16.00 11.25
1997
First Quarter............................................... $15.00 $12.25
Second Quarter.............................................. 22.38 12.00
Third Quarter (through August 5, 1997)...................... 27.50 21.88
</TABLE>

On August 5, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $26.88 per share. As of August 4, 1997, there were
197 stockholders of record of the Company's Common Stock.

The Company has not paid dividends in the past and intends to retain all of
its earnings, if any, to finance the expansion of its business and for general
corporate purposes, including future acquisitions, and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future. In
addition, the Credit Facility includes, and any additional lines of credit
established in the future may include, restrictions on the ability of the
Company to pay dividends without the consent of the lender.

12
<PAGE> 14

SELECTED FINANCIAL DATA

StaffMark acquired, simultaneously with the closing of the Initial Public
Offering, the Founding Companies. Pursuant to the requirements of SAB No. 97,
Brewer was designated, for financial reporting purposes, as the acquirer of the
Other Founding Companies. Accordingly, the primary financial information
presented below relates to Brewer through the date of the Initial Public
Offering and to StaffMark on a consolidated basis for all periods subsequent to
the Initial Public Offering. The Selected Financial Data should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto appearing elsewhere in this Prospectus as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations" which
also includes a presentation and discussion of the results of operations on a
combined basis for the three years ended December 31, 1996 and for the six
months ended June 30, 1997. For a discussion of pro forma operating results, see
the StaffMark, Inc. Unaudited Pro Forma Financial Statements and the related
notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------ -------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- -------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................ $11,159 $12,313 $27,894 $43,874 $104,476 $ 30,556 $159,987
Cost of services........................ 9,609 10,063 22,906 35,115 81,607 24,028 124,515
------- ------- ------- ------- -------- -------- --------
Gross profit............................ 1,550 2,250 4,988 8,759 22,869 6,528 35,472
Operating expenses:
Selling, general and administrative... 1,043 1,623 3,483 5,804 14,623 4,445 24,006
Depreciation and amortization......... 113 121 256 591 1,374 566 1,749
------- ------- ------- ------- -------- -------- --------
Operating income........................ 394 506 1,249 2,364 6,872 1,517 9,717
Interest expense........................ 26 54 92 801 1,376 880 507
Net income.............................. 381 478 1,177 1,587 4,023 634 5,583
PRO FORMA(1):
Revenues(2)............................. $266,074 $123,432 $173,298
Operating income(3)..................... 13,887 5,049 10,210
Net income(3)(4)........................ 6,664 2,067 5,668
Primary net income per share............ $ 0.64 $ 0.23 $ 0.39
Fully diluted net income per share...... $ 0.64 $ 0.23 $ 0.38
Primary weighted average shares
outstanding........................... 10,444 9,174 14,562
Fully diluted weighted average shares
outstanding........................... 10,444 9,174 14,816
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1997
------------------------------------------------ -------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(5)
------- ------- ------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ (324) $ 366 $ 1,157 $ 1,508 $ 24,050 $ 24,088 $ 60,833
Total assets............................ 2,321 2,917 4,054 21,752 71,498 141,908 178,653
Long-term debt.......................... -- 1,232 224 15,986 -- 43,430 --
Stockholders' equity.................... 846 1,110 2,110 2,786 58,110 75,475 155,650
</TABLE>

- ---------------

(2) Adjusted to reflect: (i) Brewer's October 1996 acquisition of the Other
Founding Companies; (ii) Brewer's February 1996 acquisition of On Call (iii)
StaffMark's March 1997 acquisition of Flexible and (iv) StaffMark's April
1997 acquisition of Global, as if such acquisitions had occurred at the
beginning of the periods presented.

(3) Adjusted to reflect: (i) the acquisitions discussed in Note 2 above; (ii)
the Compensation Differential; and (iii) the amortization expense relating
to the intangible assets recorded in conjunction with the acquisitions
discussed in Note 2 above.

13
<PAGE> 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the "Selected
Financial Data" and the related notes thereto, and StaffMark's audited financial
statements and the related notes thereto appearing elsewhere in this Prospectus.

OVERVIEW

StaffMark, Inc., a Delaware corporation, was formed in March 1996 to create
a leading provider of diversified staffing, professional and consulting
services. On October 2, 1996, StaffMark acquired, simultaneously with the
closing of its Initial Public Offering, the following established staffing
businesses and their affiliates: Brewer, Prostaff, Maxwell, HRA, First Choice
and Blethen. At the time of the Initial Public Offering, the Founding Companies
had on average operated for over 13 years in eight states through over 90 branch
offices. Since the Initial Public Offering, the Company has grown through
substantial internal growth and the acquisition of 15 other staffing and
professional service companies with 68 branches.

The Company's services are provided through three divisions: Commercial,
Professional/IT and Specialty Medical. The Commercial division provides clerical
and light industrial staffing services. The Professional/IT division provides
information technology staffing, consulting and support services, as well as
professional and technical services. The Specialty Medical division provides
clinical trial support services, medical office staffing, physical and
occupational therapists and speech pathologists. The Company provides these
services through its network of over 160 branch offices located in 21 states,
Canada and the United Kingdom.

The Company recognizes revenues upon performance of services. The Company
generally compensates its temporary associates and consultants only for hours
actually worked and, therefore, wages of the temporary associates and
consultants are a variable cost that increase or decrease as revenues increase
or decrease. However, certain of the Company's information technology
consultants and professionals are full time, salaried employees. Cost of
services primarily consists of wages paid to temporary associates and
consultants, payroll taxes, workers' compensation and other related employee
benefits. Selling, general and administrative expenses are comprised primarily
of administrative salaries, benefits, marketing, rent and recruitment expenses.

The financial information provided below has been rounded in order to
simplify its presentation. However, the percentages provided below are
calculated using the detailed financial information contained in the financial
statements, the notes thereto and the other financial data included elsewhere in
this Prospectus.

RESULTS OF OPERATIONS -- SAB NO. 97

On October 2, 1996, StaffMark acquired, simultaneously with the closing of
the Initial Public Offering, the Founding Companies. Based on the provisions of
SAB No. 97, Brewer was designated as the acquirer of the Other Founding
Companies for financial reporting purposes. Therefore, the financial information
presented below reflects the results of its operations for the years ended
December 31, 1994 and 1995. The Company's results of operations for 1996
represent a combination of Brewer's results for the nine months ended September
30, 1996 and the Company's consolidated results of operations for the three
months ended December 31, 1996. Because the Mergers and the Initial Public
Offering were accounted for based on the provisions of SAB No. 97, the
acquisition of assets and assumption of liabilities of the Founding Companies
are reflected at their historical cost. Throughout this Management's Discussion
and Analysis of Financial Condition and Results of Operations, references to
"the Company" relate to Brewer for the periods prior to the acquisition of the
Other Founding Companies, which occurred on October 2, 1996 and relate to
StaffMark and its consolidated subsidiaries subsequent to that date.

14
<PAGE> 16

RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO RESULTS FOR THE SIX
MONTHS ENDED JUNE 30, 1996

Revenues. Revenues increased $129.4 million, or 423.6%, to $160.0 million
for the six months ended June 30, 1997 compared to $30.6 million for the six
months ended June 30, 1996. This increase was attributable to the fourth quarter
1996 acquisitions of the Other Founding Companies, Technology Source, Advantage
and Tom Bain as well as the 1997 acquisitions of Advance, MRIC, Flexible,
Global, Lindenberg, TPS/Furr, HR Alternatives and Kleven. These acquisitions
accounted for approximately $120.1 million of the increase for the six months
ended June 30, 1997 and internal growth accounted for $9.3 million of the
increase, or a 30.4% increase over the 1996 period.

Gross Profit. Gross profit increased $28.9 million, or 443.3%, to $35.5
million for the six months ended June 30, 1997 compared to $6.5 million for the
six months ended June 30, 1996. This increase was primarily attributable to the
acquisitions and internal growth discussed above. Gross margin increased to
22.2% for the six months ended June 30, 1997 compared to 21.4% for the six
months ended June 30, 1996. The increase in gross margin is primarily
attributable to the Company's focus on increasing revenues from the
Professional/IT division which generally provides higher profit margins than the
Commercial division due to the specialized expertise of the consultants and
professionals. Control of variable costs, such as workers' compensation
expenses, also contributed to an increase in gross margin.

Operating Expenses. Selling, general and administrative expenses ("SG&A")
increased $19.6 million, or 440.0%, to $24.0 million for the six months ended
June 30, 1997 compared to $4.4 million for the six months ended June 30, 1996.
This increase was primarily attributable to the acquisitions discussed above,
which accounted for approximately $16.6 million of the increase for the six
months ended June 30, 1997. SG&A as a percentage of revenues increased to 15.0%
for the six months ended June 30, 1997 compared to 14.5% for the six months
ended June 30, 1996. This increase results primarily from higher SG&A associated
with the Mergers, costs associated with being a public company and the costs
associated with the acquisitions discussed above. Depreciation and amortization
expense increased $1.2 million, or 209.1%, to $1.7 million for the six months
ended June 30, 1997 compared to $566,000 for the six months ended June 30, 1996.
This increase is primarily attributable to amortization of the goodwill
associated with the acquisitions discussed above.

Operating Income. Operating income increased $8.2 million, or 540.5%, to
$9.7 million for the six months ended June 30, 1997 compared to $1.5 million for
the six months ended June 30, 1996. The Company's operating margin increased to
6.1% for the six months ended June 30, 1997 compared to 5.0% for the six months
ended June 30, 1996.

Interest Expense. Interest expense was $507,000 for the six months ended
June 30, 1997 as compared to $880,000 for the six months ended June 30, 1996.
Interest expense for the six months ended June 30, 1997 is primarily related to
borrowings made to fund the cash portion of several of the Company's
acquisitions discussed above.

Net Income. Net income increased $4.9 million, or 780.7%, to $5.6 million
for the six months ended June 30, 1997 compared to $634,000 for the six months
ended June 30, 1996. Net income as a percentage of revenues increased to 3.5%
for the six months ended June 30, 1997 compared to 2.1% for the six months ended
June 30, 1996.

RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO RESULTS FOR THE YEAR
ENDED DECEMBER 31, 1995

Revenues. Revenues increased $60.6 million, or 138.1%, to $104.5 million
for 1996 compared to $43.9 million for 1995. This increase was largely
attributable to the fourth quarter 1996 acquisitions of the Other Founding
Companies, Technology Source, Advantage and Tom Bain, which accounted for $37.3
million of the increase. The acquisition of On Call in February 1996 and the
acquisition of Caldwell in July 1995 accounted for $13.0 million and $11.7
million, respectively, of the increase in revenues, which was partially offset
by a decrease in Brewer's revenues, exclusive of acquisitions, of approximately
$1.3 million.

Gross Profit. Gross profit increased $14.1 million, or 161.1%, to $22.9
million for 1996 as compared to $8.8 million for 1995. Gross margin increased to
21.9% for 1996 compared to 20.0% for 1995. These increases

15
<PAGE> 17

are primarily attributable to the acquisitions of the Other Founding Companies,
Technology Source, Advantage, Tom Bain, On Call and Caldwell, as well as a
reduction in workers' compensation expense.

Operating Expenses. SG&A increased $8.8 million, or 152.0%, to $14.6
million for 1996 compared to $5.8 million for 1995. This increase was primarily
attributable to the acquisitions of the Other Founding Companies, Technology
Source, Advantage and Tom Bain, which accounted for $5.5 million of the
increase. Also contributing to the increase were the acquisitions of On Call and
Caldwell, which accounted for $1.6 million and $1.4 million of the increase,
respectively. SG&A as a percentage of revenues increased to 14.0% for 1996
compared to 13.2% for 1995. Depreciation and amortization expense increased
$784,000, or 132.9%, to $1.4 million for 1996 compared to $590,000 for 1995.
This increase was primarily attributable to increased amortization of
intangibles resulting from the February 1996 acquisition of On Call. Also, 1996
included a full year of amortization of intangibles relating to the July 1995
acquisition of Caldwell. Both of these acquisitions were accounted for using the
purchase method of accounting.

Operating Income. Operating income increased $4.5 million, or 190.1%, to
$6.9 million for 1996 as compared to $2.4 million for 1995. Operating margin
increased to 6.6% for 1996 as compared to 5.4% for 1995.

Interest Expense. Interest expense increased $575,000 to $1.4 million for
1996 compared to $801,000 for 1995. This increase was primarily attributable to
higher interest costs on debt incurred to finance the acquisitions of Caldwell
and On Call.

Net Income. Net income increased $2.4 million, or 153.6%, to $4.0 million
for 1996 compared to $1.6 million for 1995. Net income as a percentage of
revenues increased to 3.9% for 1996 compared to 3.6% for 1995.

RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO RESULTS FOR THE YEAR
ENDED DECEMBER 31, 1994

Revenues. Revenues increased $16.0 million, or 57.3%, to $43.9 million for
1995 compared to $27.9 million for 1994. This increase was primarily
attributable to the acquisition of Caldwell in July 1995, which accounted for
$11.7 million of the increase in revenues.

Gross Profit. Gross profit increased $3.8 million, or 75.6%, to $8.8
million for 1995 compared to $5.0 million for 1994. Gross margin increased to
20.0% for 1995 compared to 17.9% for 1994. These increases were primarily
attributable to the impact of the acquisition of Caldwell and the improvement in
gross margins for the branches acquired from Aaron Temporary Services, Inc. in
November 1993.

Operating Expenses. SG&A increased $2.3 million, or 66.6%, to $5.8 million
for 1995 compared to $3.5 million for 1994. This increase was primarily
attributable to the acquisition of Caldwell. SG&A as a percentage of revenues
increased to 13.2% for 1995 compared to 12.5% for 1994. Depreciation and
amortization expense increased $334,000, or 130.5%, to $590,000 for 1995
compared to $256,000 for 1994. This increase was primarily attributable to
increased amortization of intangibles resulting from the acquisition of
Caldwell.

Operating Income. Operating income increased $1.1 million, or 89.3%, to
$2.4 million for 1995 compared to $1.2 million for 1994. Operating margin
increased to 5.4% for 1995 compared to 4.5% for 1994.

Interest Expense. Interest expense increased $709,000 to $801,000 for 1995
compared to $92,000 for 1994. This increase was primarily attributable to higher
interest costs on debt incurred to finance the acquisition of Caldwell.

Net Income. Net income increased $410,000, or 34.8%, to $1.6 million for
1995 compared to $1.2 million for 1994. Net income as a percentage of revenues
decreased to 3.6% for 1995 compared to 4.2% for 1994.

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<PAGE> 18

RESULTS OF OPERATIONS -- COMBINED

Presented below are the combined results of operations for the periods
presented which reflect the results of operations as if the acquisitions of the
Founding Companies had occurred as of the beginning of the periods presented.
The combined results from January 1, 1994 through the Initial Public Offering
date of October 2, 1996 discussed below occurred when the Founding Companies
were not under common control or management and may not be comparable to, or
indicative of, future performance. The following table sets forth the combined
results of operations for fiscal years 1994, 1995 and 1996 and for the six
months ended June 30, 1996 and 1997.

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------ -----------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $121,156 100.0% $146,687 100.0% $198,444 100.0% $ 89,854 100.0% $159,987 100.0%
Cost of Services................ 97,112 80.2 117,103 79.8 155,472 78.3 70,807 78.8 124,515 77.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit.................. 24,044 19.8 29,584 20.2 42,972 21.7 19,047 21.2 35,472 22.2
Operating Expenses:
Selling, general and
administrative.............. 19,067 15.7 24,069 16.4 29,840 15.0 14,197 15.8 24,006 15.0
Depreciation and
amortization................ 742 0.6 1,157 0.8 1,911 1.0 919 1.0 1,749 1.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income.............. $ 4,235 3.5% $ 4,358 3.0% $ 11,221 5.7% $ 3,931 4.4% $ 9,717 6.1%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>

COMBINED RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE COMBINED
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1996

Combined Revenues. Combined revenues increased $70.1 million, or 78.1%, to
$160.0 million for the six months ended June 30, 1997 compared to combined
revenues of $89.9 million for the six months ended June 30, 1996. The
acquisitions of Technology Source, Advantage, Tom Bain, Advance, MRIC, Flexible,
Global, Lindenberg, TPS/Furr, HR Alternatives and Kleven accounted for $42.5
million of the increase, while the Company's internal growth accounted for $27.6
million of the increase. The internal growth increase resulted primarily from
the Company's emphasis on customer development and the increased demand from
existing customers.

Combined Gross Profit. Combined gross profit increased $16.4 million, or
86.2%, to $35.5 million for the six months ended June 30, 1997 as compared to
combined gross profit of $19.0 million for the six months ended June 30, 1996.
This increase is attributable to higher revenues due to internal growth and the
acquisitions discussed above. Combined gross margin increased to 22.2% for the
six months ended June 30, 1997 as compared to combined gross margin of 21.2% for
the six months ended June 30, 1996. The increase in combined gross margin is
primarily attributable to the Company's focus on increasing the revenues from
the Professional/IT division, which generally provides higher profit margins
than the Commercial division due to the specialized expertise of the
consultants. Emphasis on controlling variable costs, such as workers'
compensation expenses, also contributed to the increase in gross margin.

Combined Operating Expenses. Combined SG&A increased $9.8 million, or
69.1%, to $24.0 million for the six months ended June 30, 1997 compared to
combined SG&A of $14.2 million for the six months ended June 30, 1996. The
increase was primarily attributable to costs related to the additional revenues
from internal and acquisition growth, as well as costs associated with being a
public company and maintaining the Company's acquisition program. Combined SG&A
as a percentage of revenues decreased to 15.0% for the six months ended June 30,
1997 compared to combined SG&A as a percentage of revenues of 15.8% for the six
months ended June 30, 1996. The decrease is the result of the Company beginning
to realize efficiencies from the Mergers and subsequent acquisitions somewhat
offset by the higher SG&A associated with being a public company and maintaining
the Company's acquisition program. Combined depreciation and amortization
expense increased $830,000, or 90.3%, to $1.7 million for the six months ended
June 30, 1997 compared to combined depreciation and amortization of $919,000 for
the six months ended June 30, 1996. This increase is primarily related to the
amortization of goodwill resulting from the Company's acquisitions.

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<PAGE> 19

Combined Operating Income. Combined operating income increased $5.8
million, or 147.2%, to $9.7 million for the six months ended June 30, 1997 as
compared to combined operating income of $3.9 million for the six months ended
June 30, 1996. Combined operating margin increased to 6.1% for the six months
ended June 30, 1997 as compared to combined operating margin of 4.4% for the six
months ended June 30, 1996.

COMBINED RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO COMBINED
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995

Combined Revenues. Combined revenues increased $51.8 million, or 35.3%, to
$198.4 million for 1996 compared to $146.7 million for 1995. This increase was
largely attributable to Brewer's increase in revenue of $23.3 million primarily
resulting from the acquisitions of On Call in February 1996 and Caldwell in July
1995. Also contributing to the increase in combined revenues was an increase in
Prostaff's, Maxwell's, HRA's, First Choice's and Blethen's revenues of $4.6
million, $5.4 million, $9.0 million, $3.9 million and $3.4 million,
respectively, and the acquisitions of Technology Source, Advantage and Tom Bain
during the fourth quarter of 1996.

Combined Gross Profit. Combined gross profit increased $13.4 million, or
45.3%, to $43.0 million for 1996 as compared to $29.6 million for 1995. Combined
gross margin increased to 21.7% at December 31, 1996 from 20.2% at December 31,
1995. These increases are primarily attributable to increased revenues and an
expansion of the Professional/IT and Specialty Medical divisions, which
generally provide higher gross margins, as well as a reduction in workers'
compensation expense.

Combined Operating Expenses. Combined SG&A increased $5.8 million, or
24.0%, to $29.8 million for 1996 compared to $24.1 million for 1995. This
increase was primarily attributable to an increase in Brewer's SG&A of $3.3
million resulting from their acquisitions of On Call and Caldwell. Also
contributing to the increase in combined SG&A was an increase in Maxwell's,
HRA's, and First Choice's SG&A of $750,000, $895,000 and $216,000, respectively.
Combined SG&A as a percentage of revenues decreased to 15.0% for 1996 compared
to 16.4% for 1995 as a result of spreading fixed costs over increased revenues
and gaining operating efficiencies as the result of the Mergers. Combined
depreciation and amortization expense increased $800,000, or 65.2%, to $1.9
million for 1996 compared to $1.2 million for 1995. This increase was primarily
attributable to increased amortization of intangibles resulting from the
acquisition of On Call in February 1996. Also, 1996 included a full year of
amortization of intangibles relating to the acquisition of Caldwell in July
1995.

Combined Operating Income. Combined operating profit increased $6.9
million, or 157.5%, to $11.2 million for 1996 as compared to $4.4 million for
1995. Combined operating margin increased to 5.7% for 1996 as compared to 3.0%
for 1995.

COMBINED RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO COMBINED
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1994

Combined Revenues. Combined revenues increased $25.5 million, or 21.1%, to
$146.7 million for 1995 compared to $121.2 million for 1994. This increase was
largely due to: (i) an increase in Brewer's revenues of $16.0 million, primarily
attributable to the acquisition of Caldwell in July 1995; (ii) an increase in
Prostaff's revenues of $3.7 million, primarily due to the addition of new
significant clients and the opening of several new branches; and (iii) an
increase in Maxwell's revenues of $1.9 million, primarily attributable to a
significant client contract. Also contributing to the increase in combined
revenues was an increase in HRA's, Blethen's and First Choice's revenues of $1.8
million, $1.4 million and $696,000, respectively.

Combined Gross Profit. Combined gross profit increased $5.5 million, or
23.0%, to $29.6 million for 1995 as compared to $24.0 million for 1994. Combined
gross margin increased to 20.2% for 1995 compared to 19.8% for 1994. The
increase in combined gross margin was primarily the result of the acquisition of
Caldwell by Brewer.

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<PAGE> 20

Combined Operating Expenses. Combined SG&A increased $5.0 million, or
26.2%, to $24.1 million for 1995 compared to $19.0 million for 1994. This
increase was primarily attributable to: (i) an increase in Brewer's SG&A of $2.3
million, largely related to the acquisition of Caldwell; (ii) an increase in
Prostaff's SG&A of $1.2 million, primarily due to increased compensation
associated with the opening of several new branches; and (iii) an increase in
HRA's SG&A of $1.0 million, primarily attributable to costs associated with the
opening of several new branches. Combined SG&A as a percentage of combined
revenues increased to 16.4% for 1995 compared to 15.7% for 1994. Combined
depreciation and amortization expense increased $415,000, or 56.0%, to $1.2
million for 1995 compared to $742,000 for 1994. This increase was primarily
attributable to increased amortization of intangibles by Brewer, resulting from
the acquisition of Caldwell in 1995.

Combined Operating Income. Combined operating profit increased $123,000, or
2.9%, to $4.4 million for 1995 as compared to $4.2 million for 1994. Combined
operating margin decreased to 3.0% for 1995 as compared to 3.5% for 1994.

LIQUIDITY AND CAPITAL RESOURCES

On October 2, 1996, the Company completed the Initial Public Offering which
involved the public sale of 6,325,000 shares of Common Stock (including the
underwriters' over-allotment) at a price of $12.00 per share. The proceeds from
the transaction, net of the underwriting discount and after deducting expenses
were approximately $66.6 million. Of this amount, $15.9 million was used to pay
the cash portion of the purchase price for the Founding Companies. The remaining
net proceeds were used primarily to fund the cash portion of the Company's
acquisitions.

In October 1996, the Company also established a $50.0 million Credit
Facility with Mercantile to be used for working capital and other general
corporate purposes, including acquisitions. In May 1997, the Company expanded
the Credit Facility from $50.0 million to $100.0 million, which includes a $30.0
million revolving line of credit and a $70.0 million acquisition facility. The
Credit Facility matures on April 1, 2002 and interest on any borrowings is
computed at the Company's option at either LIBOR or Mercantile's prime rate and
incrementally adjusted based on the Company's operating leverage ratios. For the
period ended March 31, 1997, the Company paid a quarterly commitment fee equal
to 0.25% of the total Credit Facility ($50.0 million at that time). Subsequent
to March 31, 1997, the quarterly commitment fee is determined by multiplying the
unused portion of the Credit Facility by a percentage which varies from 0.25% to
0.375% based on the Company's operating leverage ratio. The Credit Facility is
secured by all of the assets of the Company and a pledge of 100% of the stock of
all of the Company's subsidiaries. During the six months ended June 30, 1997,
the Company borrowed approximately $42.6 million on the acquisition facility
which was used to pay the cash consideration for several acquisitions during the
period. The Company's net borrowing on the revolving credit facility totaled
$800,000 during the six months ended June 30, 1997. These funds were used for
general corporate purposes. The Company intends to use a substantial portion of
the net proceeds of this Offering to pay off all amounts due under the Credit
Facility. See "Use of Proceeds."

The Company is obligated under various acquisition agreements to pay
additional consideration, which will be paid in a combination of cash and Common
Stock, to certain former stockholders of acquired companies. See Note 16 of
Notes to the Company's consolidated financial statements. The total amount of
these contingent payments are not currently determinable; however, the Company
believes that the Credit Facility, its cash flows from operations, the proceeds
of the Offering and its ability to issue additional shares of Common Stock will
provide sufficient liquidity and capital resources to satisfy these obligations.

Net cash provided by (used in) operating activities was $894,000, $1.6
million, $1.9 million, ($110,000) and $143,000 in 1994, 1995, 1996 and the six
months ended June 30, 1996 and 1997, respectively. The net cash provided by and
used in operating activities for the periods presented was primarily
attributable to net income adjusted for non-cash expenses such as depreciation
and amortization and changes in operating assets and liabilities.

Net cash used in investing activities was $345,000, $12.0 million, $28.0
million, $3.2 million and $52.9 million in 1994, 1995, 1996 and the six months
ended June 30, 1996 and 1997, respectively. Cash used

19
<PAGE> 21

in investing activities in 1995 was primarily related to the acquisition of
Caldwell for approximately $11.5 million. Cash used in investing activities in
1996 was primarily related to the acquisitions of the Other Founding Companies,
On Call, Technology, Advantage and Tom Bain. Cash used in investing activities
in the first half of 1997 was primarily related to the acquisition of Advance,
MRIC, Flexible, Global, Lindenberg, TPS/Furr, HR Alternatives, Kleven and
Sterling for cash totaling $50.9 million.

Net cash provided by (used in) financing activities was $(512,000), $10.6
million, $39.7 million, $3.8 million and $41.5 million in 1994, 1995, 1996 and
the six months ended June 30, 1996 and 1997, respectively. Cash provided by
financing activities in 1996 was primarily attributable to the issuance of
Common Stock in conjunction with the Initial Public Offering and proceeds from
debt issued in conjunction with the acquisition of On Call partially offset by
the repayment of all Founding Company debt obligations with proceeds from the
Initial Public Offering and dividends to stockholders. Cash provided by
financing activities in 1995 was primarily attributable to the proceeds from
debt issued in conjunction with the acquisition of Caldwell partially offset by
debt payments and dividends paid to stockholders. Cash provided by financing
activities in the first half of 1997 was primarily attributable to the proceeds
from debt issued in conjunction with the acquisitions of Global, Lindenberg,
TPS/Furr, HR Alternatives, Kleven and Sterling.

As a result of the foregoing, combined cash and cash equivalents increased
$37,000, $211,000, $13.5 million and $459,000 in 1994, 1995, 1996 and the six
months ended June 30, 1996. Cash decreased $11.2 million for the six months
ended June 30, 1997.

Management believes that the Credit Facility, its cash flows from
operations, the proceeds of the Offering and the use of Common Stock as partial
consideration for acquisitions will provide sufficient liquidity or acquisition
currency to execute the Company's acquisition and internal growth plans through
the expiration of the Credit Facility. Should the Company accelerate its
acquisition program, the Company may need to seek additional financing through
the public or private sale of equity or debt securities. There can be no
assurance that the Company could secure such financing if and when it is needed
or on terms the Company deems acceptable. Management plans to periodically
reassess the adequacy of the Company's liquidity position, taking into
consideration current and anticipated operating cash flow, anticipated capital
expenditures, and acquisition plans, in order to ensure the Company's negotiated
credit facilities are adequate to meet the Company's needs on a short-term and
long-term basis.

SEASONALITY

The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's results of operations to fluctuate slightly.
The Company generally expects to realize higher revenues, operating income and
net income during the second and third quarters and relatively lower revenues,
operating income and net income during the first and fourth quarters.

INFLATION

The effects of inflation on the Company's operation were not significant
during the periods presented in the financial statements.

IMPACT OF NEW ACCOUNTING STANDARDS

In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which will change the current method of computing earnings per share. SFAS 128
requires the dual presentation of "basic earnings per share" and "diluted
earnings per share" amounts, as defined. SFAS 128 will be effective for the
Company's quarter and year ending December 31, 1997, and all prior-period
earnings per share data presented will be restated to conform with the
provisions of the new pronouncement. Application earlier than the Company's
quarter ending December 31, 1997 is not permitted. Basic and diluted earnings
per share as computed under SFAS 128 were $0.40 for the six months ended June
30, 1997.

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<PAGE> 22

BUSINESS

GENERAL

StaffMark is a leading provider of diversified staffing, professional and
consulting services to businesses, professional and service organizations,
medical niches and governmental agencies. The Company offers these services
through over 160 branches located in 21 states, Canada and the United Kingdom.
Since the Initial Public Offering, the Company has grown both internally and
through the acquisition of 15 additional staffing and professional service
companies with 68 branches and 1996 revenues of approximately $168.4 million.
The Company believes that this balance of internal growth and selective
acquisitions will best allow the Company to capitalize on its growth
opportunities. For the year ended December 31, 1996 and the six months ended
June 30, 1997, the Company's combined revenues and operating income were $198.4
million and $11.2 million and $160.0 million and $9.7 million, respectively.

The Company's services are provided through three divisions: Commercial,
Professional/IT and Specialty Medical. The Commercial division generated
approximately 88.1% and 76.4% of the Company's combined revenues for the year
ended December 31, 1996 and for the six months ended June 30, 1997,
respectively. The Professional/IT division generated 4.5% and 16.8% of the
Company's combined revenues for the year ended December 31, 1996 and for the six
months ended June 30, 1997, respectively. The Specialty Medical division
generated 7.4% and 6.8% of the Company's combined revenues for the year ended
December 31, 1996 and for the six months ended June 30, 1997, respectively.

OPERATING STRATEGY

The Company's operating strategy is to continue to:

Develop Long-Term Relationships with Customers. The Company seeks to
satisfy the needs of its clients by providing customized services such as
on-site management, direct placement services and recruiting specialists. The
flexibility of the Company's decentralized organization allows it to tailor its
operations to meet local client requirements. For example, clients may be
provided with customized billings, utilization reports, and safety awareness and
training programs. The Company believes that the quality of its services has
enabled it to establish and maintain long-term relationships with clients by
understanding the clients' needs, responding promptly to clients' requests,
proactively assessing clients' staffing needs, and continually monitoring job
performance and client satisfaction.

Adopt Best Practices, Policies and Procedures. Management of the Company
has evaluated the operating policies and procedures of each of the existing and
newly acquired StaffMark companies and is implementing Company-wide the various
practices that management believes best serve the needs of the Company. These
best practices have included the development of an information tracking system
for clients, human resources policies, bonus plans, time and attendance systems,
and recruiting and training programs. Management believes the examination and
adoption of best practices will continue with future acquisitions.

Increase Operating Efficiencies and Provide Strong Corporate Support. The
Company is achieving economies of scale by combining a number of general and
administrative functions at the corporate level and by reducing or eliminating
redundant functions and facilities of existing branches and newly acquired
companies. This centralization allows the Company to provide a strong level of
corporate support allowing the branches to focus on marketing and selling the
Company's services. The Company is also benefiting from further economies of
scale through common regional management and the allocation of recruiting,
training, advertising, administrative and branch office costs over a larger
number of temporary associates, consultants, professionals and clients.

Maintain Decentralized, Entrepreneurial Environment. The Company believes
an entrepreneurial business environment that rewards performance tends to
attract and retain self-motivated, achievement-oriented individuals. Each of the
Company's branches operates as a separate profit center with local management
having primary profit and loss responsibility. Each branch office has been given
latitude in many fundamental operational functions, including hiring, pricing,
training, sales and marketing. This permits each branch

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<PAGE> 23

manager to be flexible and responsive to the specific needs of local clientele.
The Company has also established a profit-based compensation plan at the branch
level and utilizes various performance-based bonuses at the regional level and,
on a Company-wide basis, an employee stock purchase plan to further motivate
management and employees.

INTERNAL GROWTH STRATEGY

The Company's internal growth strategy is to continue to:

Focus on Further Penetration in Existing Geographic Markets. The Company
currently provides diversified staffing, professional and consulting services to
businesses, professional and service organizations, medical niches and
governmental agencies. The Company plans to continue to provide high-quality
services to its existing customers, to strengthen its customer relationships and
to establish additional customer relationships in existing geographic markets.
The Company believes there are substantial growth opportunities through the
introduction of its broad range of existing services to its strong client base
throughout its network of branch offices. To further penetrate existing
geographic markets, the Company spins-off new branch offices from existing
branches, which provide the Company greater coverage in its geographic markets
at low marginal cost. These office clusters provide economies of scale by
spreading common costs such as recruiting, advertising and management over a
larger revenue base as well as providing better service to clients and
opportunities to temporary associates in these markets.

Expand and Cross-Develop the Professional/IT and Specialty Medical
Services. The Professional/IT and Specialty Medical divisions generally enjoy
higher profit margins than the Commercial division due to the specialized
expertise of the professionals and consultants in those divisions. The Company's
strategy is to continue to increase the percentage of its revenue and gross
profits from the Professional/IT and Specialty Medical divisions by emphasizing
the expansion of information technology, by cross-developing into new and
existing geographic markets and by adding new professional lines of business,
leveraging wherever possible on existing customer relationships.

Increase Vendor-On-Premise Relationships. As of June 30, 1997, the Company
had 37 VOP partnering relationships, as compared to 27 at December 31, 1996. VOP
relationships represented $37.0 million and $27.1 million of the Company's
combined revenues for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively. Under these programs, the Company can assume
administrative responsibility for coordinating all staffing and/or professional
services throughout a client's location or organization, including skills
testing and training. The VOP relationships provide clients with dedicated
on-site account management which can more effectively meet the client's changing
staffing needs with high quality and consistent service. While these partnering
relationships tend to have lower gross margins than traditional temporary
staffing services, the higher volumes, comparatively lower operating expenses
and relatively long-term contracts associated with these relationships result in
attractive operating profits for the Company and a more stable source of
revenue. The Company seeks to expand its VOP program into comprehensive
outsourcing arrangements in which the Company staffs and manages an entire
department or function on a turnkey basis at a higher gross margin than
traditional VOP arrangements.

ACQUISITION AND INTEGRATION STRATEGY

Since the Initial Public Offering, StaffMark has acquired 15 staffing and
professional service companies. The Company's acquisition strategy is to acquire
and integrate independent staffing and professional service companies with
strong management, profitable operating results and recognized local and
regional presence. The Company pursues acquisitions that expand the geographic
scope of its operations, increase its penetration of existing markets, offer
complementary services and expand the percentage of revenues generated by the
Professional/IT and Specialty Medical divisions. StaffMark has established a
team of corporate officers responsible for identifying prospective acquisitions,
performing due diligence, negotiating contracts and subsequently integrating the
acquired companies. Each potential acquisition is rated to ensure that it will
be a good fit with the StaffMark team, philosophies, culture and goals. It is
generally the Company's policy to

22
<PAGE> 24

include some amount of Common Stock as part of the consideration so that the
stockholder/managers of the acquired company and StaffMark will have common
motivation and goals.

As soon as practicable after an acquisition is completed, management begins
integrating newly acquired companies. This process involves standardizing each
acquired company's accounting and financial procedures with those of the
Company. Acquired companies are brought under the Company's uniform risk
management program, and key personnel of acquired companies often become a part
of management of the Company. Marketing, sales, field operations and personnel
programs are reviewed and, where appropriate, conformed to the best practices of
StaffMark's existing operations. In addition, StaffMark seeks to identify and
integrate the best practices from each acquired company on a Company-wide basis.
These best practices have included the development of an information tracking
system for clients, human resources policies, bonus plans, time and attendance
systems, and recruiting and training programs.

POST-IPO ACQUISITIONS

Since the Initial Public Offering, the Company has acquired and is in the
process of integrating 15 staffing and professional service companies with 68
branches and 1996 revenues of approximately $168.4 million. The acquired
Companies are described briefly below:

The Technology Source, L.L.C. ("Technology Source") was acquired in
November 1996. Technology Source, located in St. Louis, Missouri, provides
information technology services to several Fortune 100 companies in the St.
Louis and Chicago area. Technology Source had 1996 revenues of approximately
$6.8 million and operates as part of the Professional/IT division.

Chandler Enterprises, Inc. d.b.a. Advantage Staffing ("Advantage") was
acquired in December 1996. Advantage, headquartered in Spartanburg, South
Carolina, provides clerical and light industrial services. Advantage had 1996
revenues of approximately $3.6 million and operates as part of the Commercial
division.

Tom Bain Personnel, Inc. ("Tom Bain") was acquired in December 1996. Tom
Bain, located in Brentwood, Tennessee, provides primarily clerical and
information technology services. Tom Bain had 1996 revenues of approximately
$3.6 million and operates in the Commercial and Professional/IT divisions.

Advance Personnel Service, Inc. ("Advance") was acquired in February 1997.
Advance, located in Memphis, Tennessee, provides clerical, light industrial,
assembly and packing services for several Fortune 500 companies. Advance had
1996 revenues of approximately $6.3 million and operates in the Commercial
division.

MRIC Medical Recruiters International LTD ("MRIC") was acquired in February
1997. MRIC, located in Vancouver, British Columbia, provides physical therapists
on a direct placement and locum basis in Canada and the United States. MRIC had
1996 revenues of approximately $2.5 million and operates in the Specialty
Medical division.

Flexible Personnel, Inc., H.R. America, Inc. and Great Lakes Search
Associates, Inc. (collectively "Flexible") was acquired in March 1997. Flexible,
headquartered in Fort Wayne, Indiana, operates a total of 40 offices in Indiana,
Michigan and Ohio, providing clerical, light industrial,
professional/information technology, accounting and staff leasing services.
Flexible had 1996 revenues of approximately $49.3 million and operates in the
Commercial and Professional/IT divisions.

Global Dynamics, Inc. ("Global") was acquired in April 1997. Located in
Walnut Creek, California, Global provides information technology staffing
services to several Fortune 500 companies. Global had 1996 revenues of
approximately $17.2 million and operates in the Professional/IT division.

Lindenberg & Associates, Inc. ("Lindenberg") was acquired in April 1997.
Lindenberg, located in St. Louis, Missouri, provides information technology
staffing services through offices in St. Louis, Missouri; Kansas City, Kansas;
Omaha, Nebraska and Minneapolis/St. Paul, Minnesota. Lindenberg had 1996
revenues of approximately $18.0 million and operates in the Professional/IT
division.

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<PAGE> 25

TPS/Furr & Associates, Inc. ("TPS/Furr") was acquired in May 1997.
TPS/Furr, located in Monroe, North Carolina, provides clerical and light
industrial services in the Charlotte, North Carolina area. TPS/Furr had 1996
revenues of approximately $4.5 million and operates in the Commercial division.

HR Alternatives, Inc. ("HR Alternatives") was acquired in June 1997.
Located in Kingsport, Tennessee, HR Alternatives provides clerical and light
industrial services through eight offices in the areas of Eastern Tennessee,
Western Carolina and Southwestern Virginia. HR Alternatives had 1996 revenues of
approximately $8.4 million and operates in the Commercial division.

The Kleven Group and Affiliates, Inc. ("Kleven") was acquired in June 1997.
Located in Lexington, Massachusetts, Kleven provides professional and
information technology services and executive retained searches, as well as
clerical services, in the New England area. Kleven had 1996 revenues of
approximately $5.0 million and operates in the Professional/IT and Commercial
divisions.

Sterling Human Resources, Inc. ("Sterling") was acquired in June 1997.
Located in Phoenix, Arizona and Boca Raton, Florida, Sterling provides,
clerical, light industrial, technical and information technology, services and
had 1996 revenues of approximately $19.0 million. Sterling operates in the
Commercial and Professional/IT divisions.

Baker Street Group, Inc. ("Baker Street") was acquired in July 1997.
Located in Houston, Texas, Baker Street provides professional, information
technology and clerical staffing services and staffing in niche areas such as
mortgage banking and title searches. Baker Street had revenues of approximately
$11.0 million for the 12 months ended May 31, 1997 and operates in the
Professional/IT and Commercial divisions.

Temp Technology, Inc. ("Temp Technology") was acquired on July 31, 1997.
Located in Portland, Oregon, Temp Technology provides electronics assembly,
light industrial, office/clerical, and information technology staffing services.
Temp Technology had 1996 revenues of approximately $7.5 million and operates in
the Commercial division.

Expert Business Systems, Incorporated ("EBS") was acquired on August 4,
1997. Located in the Dallas/ Fort Worth metropolitan area, EBS provides
information technology services, specializing in help desk support, distributed
services and application developments. EBS had revenues of approximately $5.7
million for the 12 months ended June 30, 1997 and operates in the
Professional/IT division.

THE STAFFING AND INFORMATION TECHNOLOGY SERVICES INDUSTRY

THE COMPANY'S STAFFING SERVICES

The Company's staffing services are provided through three divisions:

Commercial Division. The Commercial division provides clerical and light
industrial staffing services, and generated approximately 88.1% and 76.4% of the
Company's combined revenues for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively. The Company's Commercial services
personnel include secretarial, clerical and word processing personnel,
receptionist/switchboard operators, typists, data entry operators, cashiers,
client service representatives, medical/legal transcriptionists, file clerks and
other miscellaneous office personnel. Light industrial services personnel
include warehouse

24
<PAGE> 26

workers, maintenance workers, assemblers, quality control clerks, order pullers,
food service workers, production workers, shipping/receiving clerks, janitors,
packagers, inventory clerks, textile manufacturers and machinists.

Professional/IT Division. The Professional/IT division provides information
technology staffing, consulting and support services and professional and
technical services and generated approximately 4.5% and 16.8% of the Company's
combined revenues for the year ended December 31, 1996, and the six months ended
June 30, 1997, respectively. Information technology services include systems
planning and design, project management, software applications development,
systems and network implementation, systems integration and higher-level
contract programming services, facilities management, system maintenance,
"help-desk" assistance and education and training. The Company provides
technical services personnel such as drafters, designers and engineers in the
mechanical and electrical engineering and computer science fields. The Company
also provides accounting personnel, paralegals and other legal assistants, and
sales, marketing and human resource professionals.

Specialty Medical Division. The Specialty Medical division provides
clinical trial support services, medical office staffing, physical and
occupational therapists and speech pathologists, and generated approximately
7.4% and 6.8% of the Company's combined revenues for the year ended December 31,
1996 and the six months ended June 30, 1997, respectively. The Company's
clinical consultants support the staffing demands of the pharmaceutical,
biotechnology, medical device and medical and clinical research data industries.
The Company recruits, both domestically and internationally, trained physical
therapists, occupational therapists and speech pathologists to work in a variety
of healthcare settings in more than 15 states. The Company also provides
complete physical therapy management and staffing services to outpatient clinics
as well as rural and suburban acute care hospitals. The Company also provides
front office and clinical support for physicians, medical offices and clinics in
select markets.

PERSONNEL

Recruiting. One of the Company's most successful recruiting tools is
referrals by its temporary associates and professionals. The Company finds that
referrals from its existing labor force provide a higher quality and a larger
number of new temporary associates and professionals. The Company employs
full-time regional recruiters who regularly monitor the skills and availability
of their region's temporary associates to ensure a base of qualified employees
to meet client demands. These recruiters also visit schools, clubs and
professional associations and present career development programs to various
organizations. In addition, the Company obtains applicants through its various
world wide web sites, through advertising in major newspapers, on radio, on
television, in the Yellow Pages and through other print media. In the
information technology area, the Company also pays its consultants a referral
fee for the recruitment and retention of qualified information technology
professionals. A growing international recruiting base is being developed to
meet increased demands for Professional/IT and Specialty Medical services.

Full Time Employees/Temporary Associates/Professionals. Currently,
StaffMark provides over 17,800 temporary associates and professionals to more
than 3,900 clients during a typical week. As of June 30, 1997, the Company
employed approximately 800 internal staff. None of the Company's employees,
including its temporary associates and consultants, are represented by a
collective bargaining agreement. The Company believes its employee relations to
be strong. Hourly wages for the Company's temporary associates and salaries for
its professionals are determined according to market conditions. The Company
pays mandated costs of employment, including the employer's share of social
security taxes ("FICA"), federal and state unemployment taxes, unemployment
compensation insurance, general payroll expenses and workers' compensation
insurance. The Company also offers access to various insurance programs and
other benefits, such as vacations, holidays and 401(k) programs to certain of
its temporary associates and professionals.

Assessment, Training and Quality Control. The Company uses a comprehensive
system to assess, select and train its temporary associates and professionals in
order to provide quality assurance for its staffing and professional service
operations. Applicants are given a range of tests, applicable to the position(s)
they seek. Clerical and office-support applicants receive comprehensive tests in
computer skills, word processing, typing,

25
<PAGE> 27

data entry, accounting and other business applications. These sophisticated
tests cover the latest software and thoroughly and objectively evaluate each
individual's skills and experience. The Company feels it is imperative to
customize testing and training to match the specific office environment in which
the individuals will be placed. In the information technology and technical
arena, specific programming tests are also given to assess the expertise of the
candidate seeking placement. Such testing measures proficiency in programming
languages, electromechanical skills, autocad, schematics and other technical
applications. Industrial electronic assembly applicants are tested to determine
basic competency, industry aptitude, hand and finger dexterity, soldering,
mathematics, ability to read a blue print, ability to assemble electronic
components and measurement calculations.

Management recognizes that certain clients have specialized staffing
requirements that can only be fulfilled with customized training. The Company
provides training programs for specific requirements, such as electronic or
mechanical assembly or the use of specialized software applications.
Computerized tutorials are generally available for temporary employees and
professionals seeking to upgrade their typing, data entry, office automation or
word processing skills, and classes on topics such as spreadsheets, software
applications and network management are conducted periodically in branch
offices.

The Company stresses specialization, training and empowerment of employees
to ensure that clients receive the highest quality service for the most
cost-effective price. In one of its markets, the Company currently operates a
career training center where temporary employees and professionals as well as
the general public can enroll in career advancement classes. This center helps
to increase the number of trained and qualified applicants for placement with
the Company's clients. The Company offers advanced training opportunities and
reimbursement for certain educational expenses to information technology
consultants as part of a comprehensive benefit package.

Workers' Compensation Program. The Company maintains workers' compensation
insurance for most claims in excess of a retention level of $250,000 per
occurrence. The Company's risk management team works alongside the third party
administrator and the broker in order to take a proactive approach to safety and
risk control. The team works diligently to train the Company's full-time staff
to better screen, test and orient the Company's temporary associates and
professionals to a more safety-conscious environment. The risk management team
performs periodic safety inspections of new and existing clients in order to
evaluate the safety environment. The team has the authority to decline service
if the work environment is perceived to be unsafe or potentially hazardous. The
Company's policies prohibit staffing of high-risk activities such as working on
unprotected elevated platforms or the handling of hazardous materials. The
team's goal is to work alongside the client company and achieve a safe work
environment through effective training and commitment to safety.

An independent actuary provides advice on overall workers' compensation
cost and periodically performs an actuarial valuation regarding the adequacy of
the Company's reserve for workers' compensation claims. Newly acquired
operations will be integrated into the Company's program at such time as, in
management's judgment, the integration is most effective.

OPERATIONS

Branch Offices. The Company offers its services through over 160 branch
offices in Arizona, Arkansas, California, Colorado, Florida, Georgia, Indiana,
Kansas, Michigan, Massachusetts, Minnesota, Missouri, Nebraska, North Carolina,
Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, Canada and
the United Kingdom. Branch managers operate their offices with a significant
degree of autonomy and accountability and receive bonuses based on the
profitability and growth of the branch. The compensation system is designed to
motivate the managers and staff to maximize the growth and profitability of
their offices while securing long-term client relationships. Branch managers
report directly to regional managers who report to either general managers, vice
presidents or executive vice presidents, all of whom receive bonuses based upon
the profitability of their region or branch. Operating within the guidelines set
by the Company, the branch managers are responsible for pursuing new business
opportunities and focusing on sales and marketing, account development and
retention, and employee recruitment, development and retention.

26
<PAGE> 28

Sales and Marketing. StaffMark's services are marketed through its network
of offices whose branch managers, supported by the Company's marketing staff,
make regular personal sales visits to clients and prospective clients. The
Company emphasizes long-term personal relationships with clients which are
developed through regular assessment of client requirements and constant
monitoring of temporary staff performance. New clients are obtained through
sales calls, consultation meetings with target companies, client referrals,
telemarketing and advertising in a variety of local and regional media,
including television, radio, direct mail, Yellow Pages, newspapers, magazines
and trade publications and through its various world wide web sites. Also, the
Company's major accounts director has developed a strategy utilizing sales calls
and consultation meetings with targeted companies. In addition, the Company
sponsors job fairs and other community events and the Company's officers and
senior management participate in national and regional trade associations, local
chambers of commerce and other civic associations.

Management Information Systems. The primary front office software utilized
by the Company is the Caldwell-Spartin system which management believes is
currently one of the leading application software systems in the staffing
industry. Caldwell-Spartin permits access to a shared database of resumes and
job orders at the branch level, allowing the branch office to fill client
orders, communicate with clients regarding invoices and perform candidate
screening for the most suitable job opportunity. The Company believes that the
Caldwell-Spartin system can be readily expanded to meet increased demands
without significant additional expenditures. Consolidation of the Company's two
largest Caldwell-Spartin users, Brewer and Prostaff, was completed January 1,
1997. HRA and Blethen completed upgrades of this system in June 1997. All
companies currently using Caldwell-Spartin are now operating on an identical
software release.

StaffMark has licensed its back office accounting and administrative
systems from PeopleSoft, Inc. ("PeopleSoft"). The Company believes that
PeopleSoft applications will provide excellent management tools, the ability to
eliminate duplicate functions and provide a high degree of internal control as
well as lower costs through centralization of systems, providing economy and
control in such areas as accounts payable, cash control, budgeting, management
reporting and human resource functions. The PeopleSoft implementation plan began
in April 1997 and as of July 1, 1997, the Company began operation of the general
ledger and accounts payable modules in its operations in Arkansas, Colorado,
Georgia, western Tennessee and Virginia. Implementation in the Company's
remaining areas of operations is scheduled to be completed by the first quarter
of 1998. The Company has chosen Digital as the hardware provider for the
database server for PeopleSoft. Digital currently supplies the hardware
supporting the Caldwell-Spartin application in all locations as well. The
Company anticipates investing approximately $2.0 million in 1997 on the
PeopleSoft and network implementations.

COMPETITION

The staffing industry is highly competitive and fragmented, with limited
barriers to entry. The Company competes with other companies in the recruitment
of qualified personnel, the development of client relationships and the
acquisition of other staffing and professional service companies. A large
percentage of temporary staffing and consulting companies are local operators
with fewer than five offices. Within local markets, these operators actively
compete with the Company for business and, in most of these markets, no single
company has a dominant share of the market. The Company also competes with
larger, full-service and specialized competitors in national, regional and local
markets. The principal national competitors include AccuStaff, Inc., Corestaff,
Inc., Manpower, Inc., Kelly Services, Inc., The Olsten Corporation, Interim
Services, Inc., and Norrell Corporation, all of which may have greater
marketing, financial and other resources than the Company. The primary
Professional/IT competitors include AccuStaff, Inc., Corestaff, Inc., Ciber,
Inc., Keane, Inc. and The Registry, Inc. The Company believes that the primary
competitive factors in obtaining and retaining clients are the number and
location of offices, an understanding of clients' specific job requirements, the
ability to provide temporary personnel in a timely manner, the monitoring of
quality of job performance and the price of services. The primary competitive
factors in obtaining qualified candidates for temporary employment assignments
are wages, responsiveness to work schedules and number of hours of work
available. Management believes that StaffMark is highly competitive in these
areas. The Company believes its

27
<PAGE> 29

long-term client relationships and strong emphasis on providing service and
value to its clients and temporary staffing associates and consultants are
important competitive advantages.

The Company also competes for acquisition candidates. The Company believes
that further industry consolidation will continue during the next several years.
However, there is likely to be significant competition which could lead to
higher prices being paid for such businesses. The Company believes that it will
have a competitive advantage in completing acquisitions as a result of: (i)
management's personal relationships with existing staffing companies; (ii) the
proven merger and acquisition experience of the Company's key executives; (iii)
the successful assimilation and integration of previous acquisitions; (iv) its
decentralized entrepreneurial environment; and (v) its willingness to include
some amount of Common Stock as part of the consideration so that the
stockholder/managers of the acquired company and StaffMark will have common
motivation and goals. However, no assurance can be given that the Company's
acquisition program will continue to be successful.

FACILITIES

The Company owns no real property, but leases space for all of its branch
offices. The Company believes that its facilities are adequate for its needs and
does not anticipate inordinate difficulty in replacing such facilities or
opening additional facilities, if needed.

The Company's corporate headquarters is located at 302 East Millsap Road,
Fayetteville, Arkansas 72703. The premises are leased from a related party for a
term ending on January 1, 2001, with three options to renew for five additional
years each. A number of other facilities are also leased from related parties.
The Company believes that the lease terms are at least as favorable as could be
obtained from any unrelated third party. While the Company believes that its
corporate headquarters are currently adequate for its needs, it is in the
process of considering the leasing of additional space at an adjacent property
from a related party. See "Certain Transactions -- Leases of Facilities."

REGULATION

The Company's operations are not generally subject to state or local
licensing requirements or other regulations specifically governing the provision
of commercial and professional staffing services. There can be no assurance,
however, that states in which the Company operates or may in the future operate
will not adopt such licensing or other regulations affecting the Company.

State mandated workers' compensation and unemployment insurance premiums
have increased in recent years and have directly increased the Company's cost of
services. In addition, the extent and type of health insurance benefits that
employers are required to provide employees have been the subject of intense
scrutiny and debate in recent years at both the national and state level.
Proposals have been made to mandate that employers provide health insurance
benefits to staffing employees, and some states could impose sales taxes, or
raise sales tax rates, on staffing services. Further increases in such premiums
or rates, or the introduction of new regulatory provisions, could substantially
raise the costs associated with hiring and employing staffing employees. See
"Risk Factors -- Increased Employee Costs" and "-- Risk of Government
Regulations and Legislative Proposals."

The Company currently recruits information technology consultants and
professionals and physical and occupational therapists internationally for
domestic placement. The entry of these employees into the United States is
regulated by the U.S. Department of Labor and U.S. Department of
Justice -- Immigration and Naturalization Services. The regulations governing
the hiring of foreign nationals are complex and change often. If either of these
authorities or any other regulatory or judicial body should determine that the
Company is not in compliance with the regulations, the Company could be subject
to fines and/or suspension of this part of the Company's business. Further,
regulations could change in a manner which would limit the Company's ability to
employ foreign nationals. Any of the foregoing could have a material adverse
effect on the Company's business, financial condition, and results of operation.
See "Risk Factors -- Government Regulation of Immigration."

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<PAGE> 30

INTELLECTUAL PROPERTY

The Company has applied for Federal Trademark registration of "StaffMark"
and the associated Company logo with the U.S. Patent and Trademark office. The
Company has received a Notice of Allowance and has filed Statements of Use for
both marks. The Company has also applied for a service mark for "StaffView,"
which is software developed for client reporting of its temporary workforce. No
assurance can be given that any such registrations will be granted or that if
granted, such registration will be effective to prevent others from: (i) using
the marks concurrently; or (ii) preventing the Company from using the service
marks in certain locations. The Company owns and licenses several other state
and federal trademarks used by the Founding Companies and the Post-IPO
Acquisitions. The Company believes that it has all rights to trademarks and
trade names necessary for the conduct of its business.

LEGAL AND ADMINISTRATIVE PROCEEDINGS

In the ordinary course of its business, the Company is periodically
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company maintains
insurance in such amounts and with such coverage and deductibles as management
believes are reasonable. The Company is not a party to any material legal
proceedings.

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<PAGE> 31

MANAGEMENT

The directors and executive officers of the Company, and their ages as of
July 31, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jerry T. Brewer(1)(3)(5).......... 56 Chairman of the Board
Clete T. Brewer(1)(5)............. 32 President and Chief Executive Officer; Director
Terry C. Bellora(5)............... 51 Chief Financial Officer
Ted Feldman(5).................... 44 Chief Operating Officer
Robert H. Janes III(5)............ 30 Executive Vice President -- Mergers and Acquisitions
Gordon Y. Allison................. 37 Executive Vice President -- General Counsel
W. David Bartholomew.............. 40 Executive Vice President -- Southeastern Operations;
Director
Donald A. Marr, Jr................ 32 Executive Vice President -- Southwestern Operations
Steven E. Schulte(5).............. 34 Executive Vice President -- Administration; Director
John H. Maxwell, Jr.(2)........... 54 Executive Vice President -- Medical Services; Director
Janice Blethen.................... 53 Executive Vice President -- Clinical Trials Support
Services; Director
William T. Gregory................ 55 Vice President and General Manager -- Carolina Region;
Director
Mary Sue Maxwell(2)............... 54 Vice President and General Manager -- Oklahoma Region
William J. Lynch(3)(4)............ 55 Director
R. Clayton McWhorter(4)........... 63 Director
Charles A. Sanders, M.D.(3)....... 65 Director
</TABLE>

- ---------------

(1) Jerry T. Brewer is the father of Clete T. Brewer.

(2) John H. Maxwell, Jr. is the husband of Mary Sue Maxwell.

(3) Member of the Audit Committee.

(4) Member of the Compensation Committee.

(5) Member of the Acquisition Committee.

Jerry T. Brewer co-founded StaffMark in March 1996 and has served since
then as its Chairman of the Board. Mr. Brewer also co-founded Brewer in July
1988, and served as its Chairman of the Board. From July 1988 to April 1994, Mr.
Brewer served as President and Chief Executive Officer of Brewer.

Clete T. Brewer co-founded StaffMark in March 1996 and has served since
then as its President and Chief Executive Officer and a Director. Mr. Brewer
also co-founded Brewer in July 1988, and served since April 1994, as President,
Chief Executive Officer and Director of Brewer. From July 1988 to April 1994,
Mr. Brewer served as Vice President and a Director of Brewer.

Terry C. Bellora became the Chief Financial Officer of the Company in
August 1996. Prior to joining StaffMark, Mr. Bellora served as Chief Financial
Officer of Pace Industries, Inc. ("Pace") from 1988 to August 1996. Mr. Bellora
served as a director of Pace from 1988 to 1993 and as an advisory director of
Pace from 1993 to 1996. Mr. Bellora is a certified public accountant and was
previously an audit partner for a regional accounting firm.

Ted Feldman became the Chief Operating Officer of the Company upon
consummation of the Initial Public Offering. Mr. Feldman founded HRA in 1991 and
since its inception served as its President and Chief Executive Officer. From
1979 until 1992, Mr. Feldman served as President of Nashville Trunk & Bag Co.
Mr. Feldman is also an independent trustee of CCA Prison Realty Trust, a
publicly traded real estate investment trust.

Robert H. Janes III co-founded StaffMark in March 1996 and has served since
then as its Executive Vice President -- Mergers and Acquisitions. Mr. Janes
served as Vice President of Finance of Brewer since April 1995. From 1988 to
1990 and 1992 to 1995, he was employed in the corporate finance department of
Stephens Inc., an investment banking firm and one of the Representatives
(hereinafter defined). In 1992, Mr. Janes obtained an MBA from The Wharton
School.

30
<PAGE> 32

Gordon Y. Allison became Executive Vice President -- General Counsel of the
Company in June 1997. Prior to joining the Company, Mr. Allison was the Vice
President -- General Counsel of Pace since February 1995. Beginning in May 1992,
Mr. Allison practiced law at the firm of Giroir & Gregory, Professional
Association in Little Rock, Arkansas, and was a partner from 1994 until his
employment with Pace. From 1990 to 1992, Mr. Allison was a special counsel in
the Division of Corporation Finance at the Securities and Exchange Commission in
Washington, D.C. and from 1988 to 1990 was a staff attorney. Mr. Allison is a
certified public accountant and worked at Arthur Andersen LLP prior to attending
law and graduate business school. Mr. Allison received his Masters of Laws in
Securities Regulation and Taxation from Georgetown University Law School.

W. David Bartholomew is the Executive Vice President -- Southeastern
Operations and a Director of the Company. Prior to joining the Company, Mr.
Bartholomew had served as Secretary/Treasurer and Principal of HRA since 1993.
From 1991 through 1993, Mr. Bartholomew was President of Cobble Personnel of
Nashville.

Donald A. Marr, Jr. is the Executive Vice President -- Southwestern
Operations of the Company. Prior to joining the Company, Mr. Marr had been
employed by Brewer since 1990 and had served as Brewer's Vice President of
Operations since October 1993.

Steven E. Schulte is the Executive Vice President -- Administration and a
Director of the Company. Prior to joining the Company, Mr. Schulte had been
employed by Prostaff since August 1987 and served as President and Chief
Executive Officer since June 1992.

John H. Maxwell, Jr. is the Executive Vice President -- Medical Services
and a Director of the Company. Prior to joining the Company, Mr. Maxwell had
served as the Chief Executive Officer of Maxwell since 1973. He is a Certified
Personnel Consultant and a Certified International Personnel Consultant.

Janice Blethen is the Executive Vice President -- Clinical Trial Support
Services and a Director of the Company. Prior to joining the Company, Ms.
Blethen had served as the Chief Executive Officer of Blethen since its inception
in 1975. Ms. Blethen is a Certified Personnel Consultant.

William T. Gregory is the Vice President and General Manager -- Carolina
Region of the Company. Prior to joining the Company, Mr. Gregory had served as
President of First Choice since 1985. Mr. Gregory is a Certified Personnel
Consultant.

Mary Sue Maxwell is the Vice President and General Manager -- Oklahoma
Region of the Company. Prior to joining the Company, Ms. Maxwell had served as
President of Maxwell since 1983.

William J. Lynch has been a Director of the Company since the consummation
of the Initial Public Offering. Mr. Lynch is a Managing Director of Capstone
Partners, LLC, a special situations venture capital firm. From October 1989 to
March 1996, Mr. Lynch was a partner of the law firm of Morgan, Lewis & Bockius
LLP. Mr. Lynch also serves as a director of Coach USA, Inc., a publicly traded
motorcoach services company.

R. Clayton McWhorter has been a Director of the Company since the
consummation of the Initial Public Offering. In 1996, Mr. McWhorter founded and
serves as Chairman and Chief Executive Officer of Clayton Associates, LLC and
Life Trust America, LLC. Mr. McWhorter is a member of the Board of Directors of
Columbia/HCA Healthcare Corporation, a public company ("Columbia/HCA"), and
served as its Chairman of the Board from April 1995 to May 1996. Mr. McWhorter
served as Chairman, President and Chief Executive Officer of Healthtrust, Inc.
from 1987 to April 1995 and served as President and Chief Executive Officer of
Hospital Corporation of America from 1985 to 1987 (both of which are now a part
of Columbia/HCA). In addition, Mr. McWhorter is a director of Suntrust
Bank -- Nashville and Corrections Corporation of America, which also are
publicly traded companies.

Charles A. Sanders, M.D. has been a Director of the Company since the
consummation of the Initial Public Offering. Dr. Sanders is retired from Glaxo,
Inc. where he served as Chief Executive Officer from 1989 through 1994 and
Chairman from 1992 through 1995. Dr. Sanders currently serves as Chairman of The
Commonwealth Fund and Project HOPE and serves on the Board of Trustees of the
University of North

31
<PAGE> 33

Carolina at Chapel Hill. Dr. Sanders currently serves as a director of Magainin
Pharmaceuticals, Inc. and Vertex Pharmaceuticals Incorporated and is a former
director of Merrill Lynch & Co., Inc., Morton International, Inc. and Reynolds
Metal Company.

The number of directors on the Board of Directors is currently fixed at 10.
Directors of the Company are elected at the annual meeting of stockholders.
Officers of the Company are appointed at the first meeting of the Board of
Directors after each annual meeting of stockholders. Directors and executive
officers of the Company are elected to serve until they resign or are removed or
are otherwise disqualified to serve, or until their successors are elected and
qualified.

The Board of Directors has established committees to perform certain of its
functions, including the Audit Committee and the Compensation Committee. The
Audit Committee reviews the internal controls of the Company, reviews the
objectivity of its financial reporting and meets with appropriate Company
financial personnel and the Company's independent certified public accountants
in connection with these reviews. The Audit Committee also recommends to the
Board of Directors the appointment of independent certified public accountants
to serve as auditors for the following year. The Compensation Committee advises
and makes recommendations to the Board of Directors with respect to salaries and
bonuses to be paid to officers and other employees of the Company. The
Compensation Committee also administers the Company's 1996 Stock Option Plan.

DIRECTOR COMPENSATION

Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives a fee of $2,000 for attendance at each Board of Directors
meeting and $500 for each committee meeting (unless held on the same day as a
Board of Directors meeting). Under the Company's 1996 Stock Option Plan, each
non-employee director automatically receives non-qualified options to purchase
10,000 shares of Common Stock upon such person's initial election as a director.
Non-employee directors also receive annual grants of non-qualified options to
purchase 2,000 shares of Common Stock at the time of each annual stockholder's
meeting. See "-- 1996 Stock Option Plan." All such options are or will have an
exercise price equal to the fair market value of the Common Stock on the date of
grant, are or will be exercisable in equal amounts over three years except as
limited by the rules and regulations of the Securities Act and the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") and will expire five
years from the date of grant. All directors of the Company are reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof, or for other expenses incurred in their capacity as
directors.

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid or accrued by the
Company for services rendered to the Company's Chief Executive Officer and to
the Company's four other most highly compensated executive officers
(collectively, the "Named Executive Officers") during the year ended December
31, 1996.

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<PAGE> 34

The Company did not grant any stock appreciation rights or make any long-term
incentive plan payouts during the periods shown.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) OPTIONS COMPENSATION
--------------------------- ---- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Clete T. Brewer, President and Chief
Executive Officer.................. 1996 $40,869 -- 10,000 $2,487
Terry C. Bellora, Chief Financial
Officer............................ 1996 41,538 -- 160,000 2,824
Ted Feldman, Chief Operating
Officer............................ 1996 39,769 -- 10,000 1,025
W. David Bartholomew, Executive Vice
President -- Southeastern
Operations......................... 1996 34,615 10,000 1,025
Steven E. Schulte, Executive Vice
President -- Administration........ 1996 31,250 -- 10,000 502
</TABLE>

- ---------------

(1) For the period October 2, 1996, the completion of the Initial Public
Offering, through fiscal year-end.

The following table sets forth information concerning each grant of stock
options to the Named Executive Officers during the year ended December 31, 1996.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
PERCENTAGE
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME OPTIONS GRANTED FISCAL 1996 ($/SHARE)(1) DATE PRESENT VALUE($)(2)
---- --------------- --------------- ------------ ---------- -------------------
<S> <C> <C> <C> <C> <C>
Clete T. Brewer........... 10,000 1.1% $12.00 10/02/06 $ 72,800
Terry C. Bellora.......... 160,000 18.4 12.00 10/02/06 1,059,800
Ted Feldman............... 10,000 1.1 12.00 10/02/06 72,800
W. David Bartholomew...... 10,000 1.1 12.00 10/02/06 72,800
Steven E. Schulte......... 10,000 1.1 12.00 10/02/06 72,800
</TABLE>

- ---------------

(1) The exercise price per share for all options granted is equal to the market
price of the underlying Common Stock as of the date of the Initial Public
Offering.

(2) The grant date present value was based on the Black-Scholes Option Valuation
Model, a widely recognized method of valuing options. The following
underlying assumptions were used to derive the present value of these
options: expected volatility of the Company's stock of 65.1%, based upon the
actual monthly volatility in the industry for the five years prior to the
grant date; a risk-free rate of return of 6.4%, based on the yield of the
five year U.S. Treasury Notes as of the grant date; and exercise of the
option five years after the grant date. The actual value, if any, the Named
Executive Officers may realize will depend on the excess of the stock price
over the exercise price on the date the option is exercised; consequently,
there is no assurance the value realized by the Named Executive Officers
will be at or near the value estimated by the Black-Scholes Option Valuation
Model.

33
<PAGE> 35

The following table sets forth information concerning the value of
unexercised options as of December 31, 1996 for the Named Executive Officers.
None of the Named Executive Officers exercised options during the year ended
December 31, 1996.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUE

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF THE UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Clete T. Brewer.................................. -- 10,000 -- $ 5,000
Terry C. Bellora................................. 25,000 135,000 $12,500 67,500
Ted Feldman...................................... -- 10,000 -- 5,000
W. David Bartholomew............................. -- 10,000 -- 5,000
Steven E. Schulte................................ -- 10,000 -- 5,000
</TABLE>

- ---------------

(1) Options are "in-the-money" if the closing market price of the Company's
Common Stock exceeds the exercise price of the options. The value of the
unexercised options represents the difference between the exercise price of
such options and the closing market price of the Company's Common Stock of
$12.50 on December 31, 1996.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee currently consists of Messrs. Lynch and
McWhorter. Neither Mr. Lynch nor Mr. McWhorter has been an officer or employee
of the Company at any time. In connection with the formation of StaffMark, Inc.,
the Company issued 136,042 shares to Capstone Partners, LLC, a Delaware Limited
Liability Company, of which Mr. Lynch is a member. Of this amount, 36,607 shares
were distributed to Mr. Lynch individually.

EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE

Messrs. Clete Brewer, Feldman, Bartholomew and Schulte entered into
employment agreements with the Company, or a subsidiary thereof, commencing on
the date of the closing of the Initial Public Offering providing for base annual
compensation of $150,000, $145,000, $125,000 and $125,000, respectively.
Pursuant to such employment agreements, each such officer is eligible for
additional year-end bonus compensation to be determined pursuant to an incentive
bonus plan. Each employment agreement is for a term of five years, and unless
terminated or not renewed by the Company or not renewed by the employee, the
term will continue thereafter on a year-to-year basis on the same terms and
conditions existing at the time of renewal.

Each of the employment agreements for Messrs. Brewer, Feldman, Bartholomew
and Schulte provides that, in the event of a termination of employment by the
Company, except for specific instances of "cause" as defined in the employment
agreement, such employee shall be entitled to receive from the Company such
employee's then current salary for a period specified in the agreement. Each
employment agreement contains a covenant not to compete with the Company for a
period of two years immediately following the termination of his employment.
Each of the other executive officers of the Company have entered into employment
agreements with substantially similar terms.

Mr. Bellora has entered into an employment agreement with the Company
providing for an annual base salary of $150,000, a bonus to be determined
annually pursuant to an incentive bonus plan and options to purchase 150,000
shares of Common Stock at the Initial Public Offering price, exercisable over a
period of five years. Such options expire ten years after the date of grant. The
employment agreement is for a term of five years. The agreement provides for the
payment of two years' salary in the event of termination without cause. In the
event of a change in control of the Company, he may elect to terminate his
employment and receive the amount he would receive pursuant to a termination
without cause. Mr. Bellora's employment

34
<PAGE> 36

agreement contains a covenant not to compete with the Company for a period
equivalent to the longer of two years immediately following termination of
employment or, in the case of a termination by the Company without cause in the
absence of a change in control, for a period of one year following termination
of employment. In the event of a change in control without 15 days notice, such
non-competition provisions would not apply.

1996 STOCK OPTION PLAN

In June 1996, the Board of Directors and the Company's stockholders
approved the StaffMark 1996 Stock Option Plan (the "Plan"). The purpose of the
Plan is to provide directors, officers, key employees and consultants with
additional incentives by increasing their ownership interests in the Company.
Directors, officers and other key employees of the Company and its subsidiaries
are eligible to participate in the Plan. In addition, awards may be granted to
consultants providing valuable services to the Company. Awards under the Plan
are granted by the Compensation Committee of the Board of Directors and may
include incentive stock options ("ISOs") and/or non-qualified stock options
("NQSOs").

The Compensation Committee of the Board of Directors, which administers the
Plan, consists of two directors who qualify as non-employee directors within the
meaning of Rule 16b-3 under the Exchange Act. The Compensation Committee
generally has discretion to determine the terms of an option grant, including
the number of option shares, option price, term, vesting schedule, the
post-termination exercise period, and whether the grant will be an ISO or NQSO.
Notwithstanding this discretion: (i) the number of shares subject to options
granted to any individual in any calendar year may not exceed 500,000 shares;
(ii) the option price per share of Common Stock may not be less than 100% of the
fair market value of such share at the time of grant or 110% of the fair market
value of such shares if the option is intended to be an ISO and is granted to a
stockholder owning more than 10% of the combined voting power of all classes of
the stock of the Company or of its parent or subsidiaries on the date of the
grant of the option; and (iii) the term of any option may not exceed 10 years or
five years if the option is intended to be an ISO and is granted to a
stockholder owning more than 10% of the total combined voting power of all
classes of stock of the Company on the date of the grant of the option. In
addition, unless otherwise specified by the Compensation Committee, all
outstanding options vest upon a "change in control" of the Company (as defined
in the Plan), and all options will terminate three months following any
termination of employment.

The Plan also provides for automatic option grants to directors who are not
otherwise employed by the Company or its subsidiaries. Upon commencement of
service (or upon agreeing to serve in the case of the initial non-employee
directors), a non-employee director will receive an NQSO to purchase 10,000
shares of Common Stock, and continuing non-employee directors will receive
annual options to purchase 2,000 shares of Common Stock. Options granted to
non-employee directors become exercisable one-third on the date of grant and
one-third on each of the next two anniversaries of the date of grant.
Non-employee directors' options have a term of five years from the date of
grant.

The maximum number of shares of Common Stock that may be subject to
outstanding options, determined immediately after the grant of any option, is
the greater of 1,500,000 shares or 12% of the aggregate number of shares of the
Company's Common Stock outstanding, provided, however, that options to purchase
no more than 1,500,000 shares of Common Stock may be granted as ISOs as of the
preceding January 1, less, in each case, the number of shares subject to
previously outstanding awards under the Plan. Shares of Common Stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited during any calendar year are available for issuance or use in
connection with future awards during such calendar year.

The Plan will remain in effect until terminated by the Board of Directors.
No ISO may be granted more than 10 years after the adoption of the Plan by the
Board or approval of the Plan by the stockholders, whichever is earlier. The
Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval within one year after approval by
the Board of Directors if required by any federal or

35
<PAGE> 37

state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.

The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended (the "Code"), which generally
disallows a public company's tax deduction for compensation to the chief
executive officer and the four other most highly compensated executive officers
in excess of $1.0 million in any tax year beginning on or after January 1, 1994.
Compensation that qualifies as "performance-based compensation" is excluded from
the $1.0 million deductibility cap, and therefore remains fully deductible by
the company that pays it. The Company intends that options granted with an
exercise price at least equal to 100% of fair market value of the underlying
stock at the date of grant will qualify as such "performance-based
compensation," although other awards under the Plan may not so qualify. Until
final regulations are adopted and other guidance made available by the Internal
Revenue Service, there can be no assurance that any awards under the Plan will
qualify as "performance-based compensation" that is fully deductible by the
Company under Section 162(m).

As of June 30, 1997 the Company had issued options to purchase a total of
1,265,000 shares of Common Stock since the completion of the Initial Public
Offering and it has 435,000 additional shares of Common Stock reserved for
issuance under the Plan. Options issued, other than those granted to
non-employee directors and Mr. Bellora, are generally exercisable as to 40% of
the underlying shares two years from the date of grant and as to an additional
20% on each of the next three anniversaries of the date of option grant.

EMPLOYEE STOCK PURCHASE PLAN

On May 2, 1997, the Company's stockholders approved the Company's Employee
Stock Purchase Plan (the "Purchase Plan"), pursuant to which eligible employees
may purchase shares of Common Stock. The purpose of the Purchase Plan is to
provide employees who wish to become stockholders an opportunity to purchase
Common Stock. The Company has reserved 300,000 shares of Common Stock for
issuance under the Purchase Plan.

Eligible Participants. Regular full or part-time employees of the Company
are eligible to participate in the Purchase Plan, on a purely voluntary basis,
if they meet certain conditions. To be eligible, an employee's customary
employment must be greater than both 20 hours per week and five months per
calendar year. The employee must also have completed one year of continuous
service with the Company. An employee who owns five percent or more of the total
combined voting power or value of all classes of stock of the Company is not
eligible to participate in the Purchase Plan. Temporary employees also are not
eligible to participate in the Purchase Plan. Approximately 4,200 employees
would have been eligible to participate as of July 31, 1997.

Material Features of the Purchase Plan. Eligible employees participate in
the Purchase Plan by exercising options to purchase Common Stock. Options shall
be granted for each purchase period to eligible employees who elect to
participate in the Purchase Plan. Each calendar quarter will be a purchase
period unless otherwise established by the committee administering the Purchase
Plan (the "Committee"). Common Stock will be purchased through a participant's
payroll deductions at a stated dollar amount not less than $10 per pay period
(or $20 if the pay period is every month), as determined by the participant, at
a price equal to the lower of 85% of the fair market value of the Common Stock
as of the first or the last trading day of each purchase period. The fair market
value of the Common Stock will be determined by reference to the Common Stock
price on the Nasdaq National Market on each relevant date. No employee will be
permitted to purchase shares of Common Stock under the Purchase Plan having an
aggregate fair market value of more than $25,000 for each calendar year.

Each eligible employee who elects to participate in the Purchase Plan will,
without any action on his or her part, be automatically deemed to have exercised
his or her option on the last day of each purchase period if he or she is then
employed, unless the employee notifies the Committee of his or her desire not to
make such purchase. To the extent that the amount withheld through payroll
deductions throughout the purchase period is sufficient to purchase, at the
option price, one or more whole shares of Common Stock, such shares shall be
purchased for the participant and delivered by the Company as determined by the
Committee. An option granted under the Purchase Plan shall not be transferable
by an employee other than by will or by the laws of

36
<PAGE> 38

descent and distribution and is exercisable during his or her lifetime only by
the employee. Shares of Common Stock purchased under the Purchase Plan may not
be sold or withdrawn from the participant's account prior to one year following
the date on which such shares were purchased.

A participant may voluntarily suspend his or her payroll deductions at any
time, but will not be permitted to resume the payroll deductions again until the
January 1 or July 1 following the date of notice to resume payroll deductions. A
participant may change the rate of his or her payroll deductions on any January
1 or July 1. If a participant terminates his or her employment with the Company,
his or her participation in the Purchase Plan will be automatically terminated
as of the date of termination of employment, and the shares held in his or her
stockholder account will either be sold as directed by the participant or
distributed to the participant, in which case the Common Stock purchased through
the Purchase Plan as of the date of termination will be distributed to the
participant together with cash equal to the sum of the fair market value of any
fractional shares owned by the participant and amounts withheld through payroll
deductions that had not been applied to purchase Common Stock under the Purchase
Plan.

All funds received or held by the Company under the Purchase Plan are
general assets of the Company, free of any trust or other restriction, and may
be used for any corporate purpose. No interest on such funds will be credited to
or paid to any participant under the Purchase Plan.

Tax Treatment. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Code, an employee who elects to participate in the Purchase Plan will not
realize income at the time the offering commences or when the shares are
actually purchased under the Purchase Plan. If an employee disposes of such
shares after two years from the date the offering of such shares commences under
the Purchase Plan and after one year from the actual date of purchase of such
shares under the Purchase Plan (collectively, the "Holding Period"), the
employee will be required to include in income, as capital gain for the year in
which such disposition occurs, an amount equal to the lesser of (i) the excess
of the fair market value of such shares at the time of disposition over the
purchase price and (ii) the excess of the fair market value of such shares at
the time the offering commenced over the purchase price.

If any employee disposes of the shares purchased under the Purchase Plan
during the Holding Period, the employee will be required to include in income,
as compensation for the year in which such disposition occurs, an amount equal
to the excess, if any, of the fair market value of such shares on the date of
purchase over the purchase price. The employee's basis in such shares disposed
of will be increased by an amount equal to the amount includable in his or her
income as compensation, and any gain or loss computed with reference to such
adjusted basis which is recognized at the time of disposition will be capital
gain or loss, either short-term or long-term, depending on the length of the
Holding Period for such shares. In the event of a disposition during the Holding
Period, the Company (or the subsidiary by which the employee is employed) will
be entitled to a deduction from income equal to the amount the employee is
required to include in income as a result of such disposition.

37
<PAGE> 39

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of July 31, 1997 and as adjusted
to reflect the sale of Common Stock offered by this Prospectus, by: (i) each
person known to the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's directors,
(iii) each Named Executive Officer; (iv) each of the Selling Stockholders; and
(v) all executive officers and directors as a group. Except as otherwise
indicated, all persons listed have sole voting and investment power with respect
to their shares.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING(1)
------------------- -------------------
NAME NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
---- --------- ------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Jerry T. Brewer(2)..................... 672,944 4.6% 10,327 662,617 3.7%
Clete T. Brewer(3)..................... 1,071,084 7.2 70,000 1,001,084 5.6
Terry C. Bellora(4).................... 25,200 * -- 25,200 *
Ted Feldman(5)......................... 303,611 2.1 -- 303,611 1.7
Robert H. Janes III.................... 184,957 1.3 18,495 166,462 *
David Bartholomew(6)................... 281,937 1.9 10,000 271,937 1.5
Donald A. Marr, Jr..................... 117,010 * 11,700 105,310 *
Steven E. Schulte(7)................... 572,870 3.9 10,000 562,870 3.1
John H. Maxwell, Jr.(8)................ 714,059 4.8 5,000 709,059 3.9
Mary Sue Maxwell(9).................... 714,059 4.8 5,000 709,059 3.9
Janice Blethen(10)..................... 476,477 3.2 5,000 471,477 2.6
William T. Gregory..................... 435,750 3.0 -- 435,750 2.4
William J. Lynch(11)(12)............... 43,640 * -- 43,640 *
Clayton McWhorter(12).................. 4,000 * -- 4,000 *
Charles A. Sanders, M.D.(12)........... 14,000 * -- 14,000 *
All executive officers and directors as
a group (16 persons)................ 4,917,539 33.2 135,522 4,777,017 26.5

OTHER SELLING STOCKHOLDERS:
Chad J. Brewer(13)..................... 680,022 4.6 60,000 620,022 3.4
John C. & Betty L. Becker Charitable
Remainder Trust(14)................. 232,022 1.6 47,000 185,022 1.0
Jean A. Curtis(15)..................... 160,497 1.1 20,000 140,497 *
Bradley C. Faerber..................... 3,860 * 860 3,000 *
Jeffrey T. Gregory..................... 62,250 * 5,000 57,250 *
Ann F. Jaeger(16)...................... 8,732 * 1,746 6,986 *
J. Christopher Jaeger.................. 8,732 * 1,746 6,986 *
Robert Kleven(17)...................... 23,263 * 2,326 20,937 *
Karla Leigh Schulte Trust.............. 116,945 * 5,000 111,945 *
Donna Vassil(18)....................... 57,938 * 5,800 52,138 *
</TABLE>

- ---------------

* Less than 1%.

(1) Assumes no exercise of the Underwriters' over-allotment option.

(2) Includes 175,000 shares held by Mr. Brewer's spouse, as to which Mr. Brewer
disclaims beneficial ownership.

38
<PAGE> 40

(3) Includes 750 shares held by Mr. Brewer's spouse, as to which Mr. Brewer
disclaims beneficial ownership. Mr. Brewer's address is c/o StaffMark,
Inc., 302 East Millsap Road, Fayetteville, Arkansas 72703. At the effective
time of the Offering, 1,500 shares beneficially owned by Mr. Brewer, which
were acquired on May 1, 1997 for $14.25 per share, will be matched against
1,500 shares to be offered by Mr. Brewer with respect to this Prospectus
pursuant to Section 16(b) of the Exchange Act. As a result of the Section
16(b) matching principle, which applies to certain purchases and sales of
stock within a six month period, and assuming a public offering price of
$26.88, Mr. Brewer will be required to pay the Company the profit resulting
from such transactions, or approximately $18,945 at the effective time of
the Offering. Mr. Brewer has informed the Company that he will deliver a
check made payable to the Company for the required amount at the effective
time of the Offering.

(4) Includes 25,000 shares subject to options which are currently exercisable.

(5) Includes 1,000 shares held by Mr. Feldman's spouse, as to which Mr. Feldman
disclaims beneficial ownership.

(6) These shares are held by Bartfund I Limited Partnership, of which Mr.
Bartholomew is the general partner.

(7) Includes 437,025 shares held by the Steven E. Schulte Revocable Trust for
which Mr. Schulte is trustee and 116,945 shares held by the Karla Leigh
Schulte Trust for which Mr. Schulte is trustee. Of the shares offered by
Mr. Shulte, 5,000 are held of record by the Karla Leigh Schulte Trust.

(8) Includes 351,620 shares held by the John H. Maxwell, Jr. Revocable Living
Trust, of which Mr. Maxwell is the trustee, and includes 362,439 shares
held by a trust for the benefit of Mr. Maxwell's spouse, as to which Mr.
Maxwell disclaims beneficial ownership. John H. Maxwell, Jr. is the spouse
of Mary Sue Maxwell. Of the shares offered by Mr. Maxwell, 2,500 are held
of record by Mr. Maxwell's spouse.

(9) Includes 362,439 shares held by the Mary Sue Maxwell Revocable Living
Trust, of which Ms. Maxwell is the trustee, and includes 351,620 shares
held by a trust for the benefit of Ms. Maxwell's spouse, as to which Ms.
Maxwell disclaims beneficial ownership. Mary Sue Maxwell is the spouse of
John H. Maxwell, Jr. Of the shares offered by Ms. Maxwell, 2,500 are held
of record by Ms. Maxwell's spouse.

(10) Includes 71,905 shares held by Blethen Family Investments Limited
Partnership, the general partner of which is a corporation controlled by
Ms. Blethen.

(11) Includes 3,033 shares for which Mr. Lynch is trustee under the Uniform Gift
to Minors Act and 3,333 shares subject to options which are currently
exercisable.

(12) Includes 4,000 shares subject to options which are currently exercisable.

(13) Includes 66,044 shares held by the Clete Brewer Irrevocable Trust for the
benefit of Chad J. Brewer and for which Chad J. Brewer is the trustee. Chad
J. Brewer is the son of Jerry T. Brewer and the brother of Clete T. Brewer.
Prior to the merger, Chad J. Brewer was a risk manager with Brewer and with
StaffMark subsequent to the merger.

(14) Includes 185,022 shares held by John and Betty Becker, individually. Mr.
and Mrs. Becker were officers of On Call before it merged with Brewer in
February 1995.

(15) Includes 105,717 shares held by Ms. Curtis' spouse, as to which Ms. Curtis
disclaims beneficial ownership. Prior to the acquisition of Flexible by
StaffMark, Ms. Curtis served as its Secretary and Mr. Curtis served as its
President.

(16) Ms. Jaeger was associated with Blethen through July 1997.

(17) Prior to the acquisition of Kleven by StaffMark, Mr. Kleven served as
president of Kleven, and he continues to run its operations for the
Company.

(18) Ms. Vassil is the general manager of Georgia operations of the Company, and
prior to the Mergers, Ms. Vassil was general manager of Caldwell.

39
<PAGE> 41

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 26,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"), and 1,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock").
Without giving effect to the issuance of shares as contemplated by this
Prospectus, the Company has outstanding 14,919,296 shares of Common Stock and no
shares of Preferred Stock.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.

Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefore. Holders of Common Stock are entitled to share ratably in
the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any Preferred Stock
then outstanding. The holders of Common Stock have no preemptive rights to
purchase shares of stock of the Company. Shares of Common Stock are not subject
to any redemption provisions and are not convertible into any other securities
of the Company. All outstanding shares of Common Stock are, and the shares of
Common Stock to be issued pursuant to this Offering will be upon payment
therefor, fully paid and non-assessable.

The Common Stock trades on the Nasdaq National Market under the symbol
"STAF."

PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Certificate of Incorporation and limitations prescribed by law,
the Board of Directors is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the stockholders. The Company has no current plans to issue any shares of
Preferred Stock of any class or series.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the

40
<PAGE> 42

business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation; or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, through
action of its stockholders, to exempt itself from coverage, provided that such
bylaw or certificate of incorporation amendment shall not become effective until
12 months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation or Bylaws.

LIMITATION ON DIRECTORS' LIABILITIES

Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors and executive officers of the Company are not liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty,
except for liability in connection with a breach of duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for dividend payments or stock repurchases illegal under
Delaware law or any transaction in which a director has derived an improper
personal benefit.

As permitted by Delaware law, the Company has entered into an
indemnification agreement with its directors, pursuant to which the Company will
agree to pay certain expenses, including attorney's fees, judgments, fines and
amounts paid in settlement incurred by such directors in connection with certain
actions, suits or proceedings. These agreements require directors to repay the
amount of any expenses advanced if it shall be determined that they shall not
have been entitled to indemnification. Further, the Company maintains liability
insurance for the benefit of its directors and officers.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First Chicago
Trust Company of New York.

41
<PAGE> 43

CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

In connection with its formation, the Company issued 1,000 shares of Common
Stock at $.01 per share and subsequently declared a stock dividend of 1,355
shares of Common Stock for each share of Common Stock outstanding. The shares
were issued to various members of management including: Jerry T. Brewer --
179,944 shares; Clete T. Brewer -- 457,042 shares; Donald A. Marr, Jr. -- 34,010
shares; Robert H. Janes III -- 184,957 shares; and Janice Blethen -- 25,068
shares. The Company also issued 136,042 shares to Capstone Partners, LLC, a
Delaware Limited Liability Company, of which William J. Lynch is a member. Of
this amount, 36,607 shares were distributed to Mr. Lynch individually.

Simultaneously with the closing of the Initial Public Offering, the Company
acquired by merger all of the issued and outstanding stock of the six Founding
Companies, at which time each Founding Company became a wholly owned subsidiary
of the Company. The aggregate consideration paid by the Company in the Mergers
was approximately $83.3 million, consisting of approximately $15.9 million in
cash and 5,618,249 shares of Common Stock. In addition, in conjunction with the
Mergers certain of the Founding Companies made distributions totaling
approximately $5.3 million, representing S Corporation earnings previously taxed
to their respective stockholders. Also, prior to the Mergers, certain of the
Founding Companies made distributions of certain assets with a net book value
totaling approximately $349,000.

The following table sets forth the consideration paid for each Founding
Company:

<TABLE>
<CAPTION>
COMMON STOCK
---------------------
VALUE OF
COMPANY CASH SHARES SHARES TOTAL
------- ------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Brewer..................................... $ 2,950 1,935,000 $23,220 $26,170
Prostaff................................... 4,500 1,050,000 12,600 17,100
Maxwell.................................... 2,280 912,000 10,944 13,224
HRA........................................ 2,348 615,175 7,382 9,730
First Choice............................... 2,075 622,500 7,470 9,545
Blethen.................................... 1,764 483,574 5,803 7,567
------- --------- ------- -------
Total............................ $15,917 5,618,249 $67,419 $83,336
======= ========= ======= =======
</TABLE>

In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors, key employees and holders
of more than 5% of the outstanding shares of the Company, together with trusts
for which they act as trustees, received cash and shares of Common Stock of the
Company as follows:

<TABLE>
<CAPTION>
FOUNDING COMPANY
CONSIDERATION
------------------------------
SHARES OF
NAME CASH COMMON STOCK
---- -------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Jerry T. Brewer........................................... $ 1,376 318,000
Clete T. Brewer........................................... -- 610,912
Ted Feldman............................................... 1,009 302,611
W. David Bartholomew...................................... 1,210 282,437
Donald A. Marr, Jr........................................ -- 83,000
Steven E. Schulte......................................... 1,954 455,925
John H. Maxwell, Jr....................................... 886 354,402
Mary Sue Maxwell.......................................... 913 365,221
Janice Blethen............................................ 1,626 451,410
William T. Gregory........................................ 1,453 435,750
------- ---------
Total........................................... $10,427 3,659,668
======= =========
</TABLE>

42
<PAGE> 44

Pursuant to the agreements entered into in connection with the Mergers, all
of the stockholders of the Founding Companies agreed not to compete with the
Company for five years, unless reduced by applicable state law, commencing on
the date of consummation of the Initial Public Offering.

Prior to the Initial Public Offering, certain of the Founding Companies
incurred indebtedness which was personally guaranteed by its stockholders or by
entities controlled by its stockholders. The Company repaid approximately $29.5
million of indebtedness of the Founding Companies immediately following the
consummation of the Initial Public Offering, of which approximately $14.5
million directly or indirectly benefited persons who became officers, directors
or greater than 5% stockholders of the Company upon consummation of the Initial
Public Offering. In each case, such person was either a direct obligor or a
guarantor of such indebtedness. Further, approximately $4.1 million of such
indebtedness was incurred by the Founding Companies in connection with S
Corporation distributions to the stockholders of the Founding Companies prior to
the Mergers.

LEASES OF FACILITIES

In connection with the acquisition of Brewer, the Company assumed a lease
by Brewer of property in Fayetteville, Arkansas that is owned by Brewer
Investments, an Arkansas limited partnership whose partners are Jerry T. Brewer
and Kay Brewer. Jerry T. Brewer is the father of Clete T. Brewer and Kay Brewer
is the mother of Clete T. Brewer who was an officer, director and principal
stockholder of Brewer. Lease payments to Brewer Investments were $60,000 in each
of 1993, 1994 and 1995. In January 1996, Brewer Investments began leasing a new
and larger building to Brewer which became the Company's headquarters. The total
lease payments to Brewer Investments for the year ended December 31, 1996 and
the six months ended June 30, 1997 were $225,000 and $113,000, respectively. The
annual rent for the building is $225,000 and the lease extends for five years.
The building leased during previous years is no longer being leased to the
Company. The Company is responsible for all real estate taxes, insurance and
maintenance.

In connection with the acquisition of Prostaff, the Company assumed leases
by Prostaff of property in Little Rock, Arkansas used by Prostaff in its
operations that are owned by an Arkansas limited liability company, one of whose
members is Steven E. Schulte, who was an officer, director and principal
stockholder of Prostaff. The aggregate rental expenses for this property was
approximately $74,000, $114,000 and $116,000 for fiscal years 1994, 1995, and
1996, respectively, and approximately $51,000 for the six months ended June 30,
1997. The annual rent is $127,000 and Prostaff is responsible for all real
estate taxes, insurance and maintenance.

Prior to the Mergers, Maxwell distributed real estate to John H. Maxwell,
Jr. and Mary Sue Maxwell, with an aggregate carrying value of approximately
$221,000. Such real estate is leased to the Company at an annual rent of
$100,000. The lease has a three year term and a two year renewal option.

The Company believes that the rent payments made for leased facilities with
related parties are on terms that are as favorable to the Company as those that
could be obtained from unaffiliated third parties.

CERTAIN LOANS

In October 1996, StaffMark advanced Donald A. Marr, Jr. the principal
amount of $80,000 due on October 2, 1999 pursuant to a promissory note that
accrues interest at six percent per annum.

During 1996, Blethen had made advances to Janice Blethen totaling $250,752.
Such amounts were repaid prior to the consummation of the Mergers.

During 1996, First Choice had an unsecured demand note payable to William
T. Gregory in the principal amount of $140,000, with interest payable
semiannually at 8% per annum, which was paid off as of the closing of the
Initial Public Offering.

43
<PAGE> 45

OTHER TRANSACTIONS

In December 1995, a note receivable from Brewer Investments in the amount
of approximately $345,000 was distributed pro-rata to the individual
shareholders of Brewer, including $80,000 to Jerry T. Brewer and $132,000 to
Clete T. Brewer.

In November 1995, Ted Feldman and Bartfund I Limited Partnership, an
affiliate of W. David Bartholomew, purchased the common stock of a former
stockholder of HRA for $150,000, each issuing to him a promissory note in the
amount of $75,000. HRA guaranteed payment of Mr. Fedman's and Bartfund I Limited
Partnership's promissory notes to the former stockholder. Such amounts were
repaid prior to the consummation of the Mergers. In addition, HRA agreed to pay
the former shareholder a $30,000 bonus for fiscal 1995; $150,000 as a severance
arrangement to be paid in monthly installments of $5,690 through November 15,
1996; $5,647 through November 15, 1997, and $1,163 through November 15, 1998;
and $236,518 as a non-compete agreement payable monthly through November 15,
2003.

In November 1995, Mr. Feldman and Mr. Bartholomew purchased an option held
by certain parties to acquire 30% of the common stock of HRA for $250,000. In
conjunction with this transaction, HRA advanced to each of Mr. Feldman and Mr.
Bartholomew the sum of $125,000. Such amounts were repaid prior to the
consummation of the Mergers. In addition, HRA entered into a Settlement
Agreement and Release with the holders of the option which released all claims
against HRA for the sum of $90,000.

COMPANY POLICY

In the future, any transactions with the Company's stockholders, officers
and directors or their affiliates, if any, will be subject to the approval of a
majority of the independent and disinterested outside directors and will be
conducted on terms no less favorable than could be obtained from unaffiliated
third parties.

SHARES ELIGIBLE FOR FUTURE SALE

SECURITIES LAW RESTRICTIONS

Upon completion of the Offering, the Company will have outstanding
18,134,296 shares of Common Stock (assuming no exercise of outstanding options).
Of such shares, 8,308,476 shares of Common Stock are considered "restricted
securities" pursuant to Rule 144 under the Securities Act and may only be sold
if they are registered under the Securities Act or if an exemption from
registration is available, including an exemption afforded by Rule 144 under the
Securities Act.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned his or her restricted securities for at least one year but
less than two years, is entitled to sell within any three-month period a number
of such shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale is filed with the Securities and Exchange Commission (the
"Commission"). Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice, and availability of current public
information about the Company. A person who is not deemed to have been an
affiliate of the Company at any time during the three months preceding a sale,
and who owns shares that have not been held by the Company or an affiliate of
the Company for at least two years, would be entitled to sell the shares under
Rule 144(k) without compliance with the limitations described above. Restricted
securities properly sold in reliance on Rule 144 are thereafter freely tradeable
without restrictions or registration under the Securities Act unless thereafter
held by an affiliate of the Company.

LOCK-UP RESTRICTIONS

Underwriters' Lock-Ups. The Company, its directors, executive officers and
certain of its stockholders have agreed with the Representatives that they will
not offer or sell any shares of Common Stock they currently own for a period of
180 days after the date of this Prospectus without the prior written consent of

44
<PAGE> 46

J.C. Bradford & Co., except that the Other Founding Stockholders (as defined)
and the Stockholder Affiliates (as defined) may sell a portion of their shares
of Common Stock without the prior written consent of J.C. Bradford & Co. during
the Open Period (as defined). In addition, the Company may issue shares of
Common Stock in connection with acquisitions, upon exercise of options granted
or to be granted under the Company's 1996 Stock Option Plan and in connection
with the Purchase Plan.

Company Lock-Ups. At time of the Initial Public Offering, each of the
stockholders of the Founding Companies and the organizers of the Company agreed
with the Company that they would not sell any of their shares they received
immediately prior to the Initial Public Offering until September 27, 1998 (the
"Two Year Lock-Up"), subject to certain exceptions. On July 29, 1997, each of
the directors, executive officers and certain stockholders of the Company who
were either a Founding Company stockholder and/or an organizer of the Company
(collectively, the "Stockholder Affiliates") agreed with the Company to extend
the Two Year Lock-Up relating to their shares of Common Stock until September
27, 1999 (the "Extended Lock-Up"), subject to certain exceptions. The shares of
Common Stock of the Founding Company stockholders and organizers of the Company
who are not Stockholder Affiliates (collectively the "Other Founding
Stockholders") will remain subject to the Two Year Lock-Up, subject to certain
exceptions.

Even though the shares of Common Stock owned by the Other Founding
Stockholders and the Stockholder Affiliates remain subject to the Two Year
Lock-Up and the Extended Lock-Up, respectively, upon proper notice, the Company
has agreed to allow the Other Founding Stockholders and the Stockholder
Affiliates to sell (if they so desire) up to 10% of their shares of Common
Stock, or approximately 671,144 shares of Common Stock during a 30 day period
that will begin during either late October 1997 or early November 1997 (the
"Open Period"). Any shares that are eligible for sale during the Open Period,
but are not then sold, will remain subject to the Two Year Lock-Up or the
Extended Year Lock-Up, as applicable.

In addition to any sales by the Other Founding Stockholders or the
Stockholder Affiliates during the Open Period, the Company has agreed to release
from the Two Year Lock-Up or the Extended Lock-Up, as applicable, a certain
number of the shares owned by the Other Founding Stockholders and Stockholder
Affiliates at different points in time through September 27, 1999. In either
late April 1998 or early May 1998, the Company has agreed to release 10% of the
shares of Common Stock (the "First Release Amount") then owned by the Other
Founding Stockholders and the Stockholder Affiliates, which, assuming no sales
during the Open Period, will be approximately 671,144 shares of Common Stock. In
either late October 1998 or early November 1998, the Company has agreed to
release 20% of the shares of Common Stock then owned by the Stockholder
Affiliates and not previously released (the "Second Release Amount"), which,
assuming no sales during either the Open Period or with respect to any shares
that are a part of the First Release Amount, will be approximately 810,909
shares of the Company's Common Stock. In either late April 1999 or early May
1999, the Company has agreed to release 40% of the shares of Common Stock then
owned by the Stockholder Affiliates and not previously released, which, assuming
no sales during either the Open Period or with respect to any shares that are a
part of either the First Release Amount or the Second Release Amount, will be
approximately 1,297,454 shares of the Company's Common Stock.

Any sales of shares of Common Stock by the Other Founding Stockholders or
the Stockholder Affiliates during the Open Period would be subject to all of the
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder, including Rule 144. Any sales of shares of Common Stock by the Other
Founding Stockholders or the Stockholder Affiliates that have been released from
the Two Year Lock-Up or the Extended Year Lock-Up, as applicable, would be
subject to all of the provisions of the Securities Act, the Exchange Act and the
rules and regulations thereunder, including Rule 144.

Net Effect of the Extended Year-Lock Up. Assuming no sales by the
Stockholder Affiliates during the Open Period, the Extended Lock-Up effectively
restricts the transfer of approximately 1,946,180 shares of Common Stock beyond
the expiration date of the Two Year Lock-Up to September 27, 1999. Without the
agreement by the Stockholder Affiliates to the Extended Lock-Up, these shares of
the Common Stock would otherwise have become available for sale pursuant to Rule
144 on September 27, 1998.

Expiration of Various Lock-Up Periods. Following the expiration of the Two
Year Lock-Up and assuming no sales during the Open Period, 1,985,748 shares
owned by the Other Founding Stockholders will

45
<PAGE> 47

be eligible for public resale in accordance with Rule 144. Following the
expiration of the Extended Lock-Up and assuming no sales during the Open Period,
1,946,180 shares owned by the Stockholder Affiliates will be eligible for public
resale in accordance with Rule 144. Following the later of: (i) one year
subsequent to the closing date of various Post-IPO Acquisitions in which shares
of Common Stock were issued as all or part of the consideration or; (ii) the
expiration of various lock-up periods with respect to shares of Common Stock
issued in certain of the Post-IPO Acquisitions, 1,597,041 shares will be
eligible for resale in accordance with Rule 144.

SHELF REGISTRATION STATEMENT

In August 1997, the Company intends to file a shelf registration statement
on Form S-1 (the "Shelf Registration") to register the sale of up to 376,162
shares of its Common Stock. The shares of Common Stock to be included on the
Shelf Registration were issued as all or part of the consideration in two of the
Post-IPO Acquisitions. None of the shares to be included on the Shelf
Registration are owned by the Stockholder Affiliates or the Other Founding
Stockholders. Of the shares to be included on the Shelf Registration, 286,162
shares were issued in a transaction that will be accounted for as a
pooling-of-interests. The stockholders of the acquired entity who received
shares in the pooling transaction have agreed not to sell any of the shares to
be included on the Shelf Registration until the Company releases its earnings
for the quarterly period ending on September 30, 1997, after which time these
shares may be sold without any restriction. The remaining number of shares that
are to be included on the Shelf Registration are not subject to this limitation,
but are nevertheless subject to a lock-up restriction with the Company that
expires on April 4, 1999, and thus, may not be sold until the expiration of such
lock-up.

REGISTRATION RIGHTS

Certain of the Other Founding Stockholders and the Stockholder Affiliates
have exercised their registration rights and are selling shares of Common Stock
as part of the Offering. Subsequent to the Offering and notwithstanding the Two
Year Lock-Up and the Extended Lock-Up, each of the Other Founding Stockholders,
the Stockholder Affiliates and persons or entities who received shares of Common
Stock in the Post-IPO Acquisitions have the right, in the event the Company
proposes to register under the Securities Act any Common Stock for its own
account, to require the Company to include their shares in the registration,
subject to the right of any managing underwriter of any such offering to exclude
some or all of the shares for marketing reasons. At any time after August 22,
1998, and upon the vote of the holders of at least a majority of the shares of
the Common Stock issued in connection with the Mergers that are not eligible for
sale pursuant to Rule 144(k), the Other Founding Stockholders and the
Stockholder Affiliates have certain limited demand registration rights to
require the Company to register shares held by them. See "Principal and Selling
Stockholders."

1996 EQUITY BASED PLANS

The Company has granted options under the Plan options to purchase
1,265,000 shares of Common Stock. Substantially all of the options will vest in
increments over a period of five years from the date of each respective grant.
The Company has registered the shares that will be issuable upon exercise of
options granted under the Plan, such that these shares when issued, will be
immediately eligible for resale in the public market. The Company has reserved
300,000 shares of Common Stock for issuance during the term of the Purchase
Plan. The Company has registered the shares that will be issued under the
Purchase Plan, such that these shares when issued, will be immediately eligible
for resale in the public market.

46
<PAGE> 48

UNDERWRITING

Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co., Montgomery Securities and Stephens Inc., as representatives of the several
underwriters (the "Representatives"), have agreed, severally, to purchase from
the Company and the Selling Stockholders the number of shares of Common Stock
set forth below opposite their respective names:

<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
J.C. Bradford & Co. ........................................
Montgomery Securities ......................................
Stephens Inc. ..............................................

---------
Total............................................. 3,500,000
=========
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all shares of Common Stock
offered hereby, if any of such shares are purchased.

The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose initially to offer the shares of
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the public offering, the public offering price and
concessions may be changed. The Representatives have informed the Company that
the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.

The Offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of shares.

The Company has granted the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to 525,000
additional shares of Common Stock to cover over-allotments, if any. To the
extent that the Underwriters exercise the option, each of them will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the table above
bears to the total number of shares in such table, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the 3,500,000 shares of Common Stock offered hereby.
If purchased, the Underwriters will sell these additional shares on the same
terms as those on which the 3,500,000 shares are being offered.

The Company, its executive officers, directors and certain of its
stockholders, have agreed with the Representatives not to offer to sell or
otherwise dispose of any shares of Common Stock they currently own for a period
of 180 days from the date of this Prospectus, without the prior written consent
of J.C. Bradford & Co., except for any sales during the Open Period and except
that the Company may issue shares in connection with acquisitions or upon the
exercise of stock options granted or to be granted under the Plan and in
connection with the Purchase Plan. See "Shares Eligible for Future
Sale -- Underwriters' Lock-Ups." See "Shares Eligible for Future Sale" for
information with respect to additional information regarding the lock-up
restrictions for the Stockholder Affiliates and the Other Founding Stockholders,
as well as the terms of certain registration rights held by these individuals
and others.

47
<PAGE> 49

The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and controlling persons, if any,
against certain civil liabilities, including liabilities under the Securities
Act, or will contribute to payments that the Underwriters or any such
controlling persons may be required to make in respect thereof.

In connection with this Offering, certain Underwriters and selling group
members (if any) who in the past have acted as market makers in the Common Stock
may engage in passive market making activities in the Common Stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act. Underwriters and other participants in the distribution of the Common Stock
generally are prohibited during a specified time period (the "qualifying
period"), determined in light of the timing of the pricing of the Offering, from
bidding for or purchasing the Common Stock or a related security except to the
extent permitted under the applicable rules of Regulation M. Rule 103 allows,
among other things, an Underwriter or member of the selling group (if any) for
the Common Stock to effect "passive market making" transactions on the Nasdaq
National Market in the Common Stock during the qualifying period at a price that
does not exceed the highest independent bid for that security at the time of the
transaction. Such a passive market maker must not display a bid for the subject
security at a price in excess of the highest independent bid, and generally must
lower its bid if all independent bids are lowered. Moreover, the passive market
maker's net purchases of such security on each day of the qualifying period
shall not exceed 30% of its average daily trading volume during a reference
period preceding the distribution.

In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. The Underwriters may also impose a
penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Stock in the Offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the Underwriters may bid for, and purchase, shares of Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of Common Stock above market levels that may otherwise prevail. The Underwriters
are not required to engage in these activities and may end any of these
activities at any time.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Wright, Lindsey & Jennings,
Little Rock, Arkansas. Counsel for the Underwriters is Nelson Mullins Riley &
Scarborough, L.L.P., Atlanta, Georgia.

EXPERTS

The audited financial statements of StaffMark, Prostaff, Maxwell, HRA,
First Choice, Blethen and Global included elsewhere in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving such reports.

The combined balance sheet of Flexible as of December 31, 1996 and the
related combined statements of income, changes in stockholders' equity and cash
flows for the year then ended included in this Prospectus have been included
herein in reliance on the report, which includes an explanatory paragraph due to
a change in entities, of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.

48
<PAGE> 50

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement (and the
exhibits and schedules thereto), certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is made
to such Registration Statement and the exhibits and schedules filed as part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are necessarily summaries, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference to such exhibit.

The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission. A copy of the Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the Commission's principal
offices, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, upon payment
of prescribed fees. Electronic registration statements, reports, proxy and
information statements and other information regarding registrants filed through
the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's world wide web site
(http://www.sec.gov). This Registration Statement, as well as all exhibits and
amendments hereto, have been filed through EDGAR.

The Company will provide without charge to each person who receives a copy
of this Prospectus, upon written or oral request of such person, a copy of any
of the information that is incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
the exhibits are themselves specifically incorporated by reference). Such
request should be directed to: StaffMark, Inc., Attention: Gordon Y. Allison,
Executive Vice President -- General Counsel, 302 East Millsap Road,
Fayetteville, Arkansas 72703, (501) 973-6000.

The Company's Common Stock is traded on the Nasdaq National Market. Proxy
statements and other information concerning the Company can also be inspected at
the offices of the Nasdaq National Market, 1735 K Street, Washington, D.C.
20006.

49
<PAGE> 51

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
STAFFMARK, INC. UNAUDITED PRO FORMA FINANCIAL STATEMENTS:
Introduction to Unaudited Pro Forma Financial
Statements............................................. F-3
Unaudited Pro Forma Statement of Income for the Six Months
Ended June 30, 1997.................................... F-4
Notes to Unaudited Pro Forma Statement of Income for the
Six Months Ended June 30, 1997......................... F-5
Unaudited Pro Forma Statement of Income for the Six Months
Ended June 30, 1996.................................... F-6
Notes to Unaudited Pro Forma Statement of Income for the
Six Months Ended June 30, 1996......................... F-7
Unaudited Pro Forma Statement of Income for the Year Ended
December 31, 1996...................................... F-8
Notes to Unaudited Pro Forma Statement of Income for the
Year Ended December 31, 1996........................... F-9

HISTORICAL FINANCIAL STATEMENTS OF STAFFMARK, INC.:
Report of Independent Public Accountants.................. F-10
Consolidated Balance Sheets............................... F-11
Consolidated Statements of Income......................... F-12
Consolidated Statements of Stockholders' Equity........... F-13
Consolidated Statements of Cash Flows..................... F-14
Notes to Consolidated Financial Statements................ F-15

HISTORICAL FINANCIAL STATEMENTS OF OTHER FOUNDING COMPANIES:

THE PROSTAFF COMPANIES
Report of Independent Public Accountants.................. F-28
Combined Balance Sheets................................... F-29
Combined Statements of Income............................. F-30
Combined Statements of Stockholders' Equity............... F-31
Combined Statements of Cash Flows......................... F-32
Notes to Combined Financial Statements.................... F-33

THE MAXWELL COMPANIES
Report of Independent Public Accountants.................. F-40
Combined Balance Sheets................................... F-41
Combined Statements of Income............................. F-42
Combined Statements of Stockholders' Equity............... F-43
Combined Statements of Cash Flows......................... F-44
Notes to Combined Financial Statements.................... F-45

HRA, INC.
Report of Independent Public Accountants.................. F-52
Balance Sheets............................................ F-53
Statements of Income...................................... F-54
Statements of Stockholders' Equity........................ F-55
Statements of Cash Flows.................................. F-56
Notes to Financial Statements............................. F-57
</TABLE>

FIRST CHOICE STAFFING, INC.
Report of Independent Public Accountants.................. F-66
Balance Sheets............................................ F-67
Statements of Income...................................... F-68
Statements of Stockholders' Equity........................ F-69
Statements of Cash Flows.................................. F-70
Notes to Financial Statements............................. F-71

F-1
<PAGE> 52
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE BLETHEN GROUP
Report of Independent Public Accountants.................. F-77
Combined Balance Sheets................................... F-78
Combined Statements of Income............................. F-79
Combined Statements of Stockholders' Equity............... F-80
Combined Statements of Cash Flows......................... F-81
Notes to Combined Financial Statements.................... F-82

HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES:

FLEXIBLE PERSONNEL GROUP OF COMPANIES
Report of Independent Public Accountants.................. F-90
Combined Balance Sheet.................................... F-91
Combined Statement of Income.............................. F-92
Combined Statement of Changes in Stockholders' Equity..... F-93
Combined Statement of Cash Flows.......................... F-94
Notes to Combined Financial Statements.................... F-95

GLOBAL DYNAMICS, INC.
Report of Independent Public Accountants.................. F-98
Balance Sheet............................................. F-99
Statement of Income....................................... F-100
Statement of Changes in Stockholders' Equity.............. F-101
Statement of Cash Flows................................... F-102
Notes to Financial Statements............................. F-103
</TABLE>

F-2
<PAGE> 53

STAFFMARK, INC.

INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

StaffMark, through wholly-owned subsidiaries, simultaneously with the
closing of the Initial Public Offering, merged with Brewer, Prostaff, Maxwell,
HRA, First Choice and Blethen. Pursuant to the requirements of SAB No. 97,
Brewer was designated as the acquirer for financial reporting purposes, of the
Other Founding Companies. Based upon the provisions of SAB No. 97, these
acquisitions were accounted for as combinations at historical cost.

The following unaudited pro forma financial statements present StaffMark
and give effect to the following pro forma adjustments as if the transactions
were consummated as of the beginning of the applicable reporting period: (i)
Brewer's 1996 acquisition of the Other Founding Companies; (ii) Brewer's
February 1996 acquisition of On Call; (iii) StaffMark's March 1997 acquisition
of Flexible; (iv) StaffMark's April 1997 acquisition of Global; (v) the
adjustment to compensation expense for the Compensation Differential; and (vi)
the incremental provision for income taxes attributable to the income of S
Corporations, net of the income tax benefits related to the Compensation
Differential.

The pro forma financial statements do not purport to represent what the
Company's results of operations would actually have been if such transactions in
fact had occurred on those dates or to project the Company's results of
operations for any future period. See "Risk Factors" included elsewhere herein.

The pro forma financial statements should be read in conjunction with other
information contained elsewhere in this Prospectus under the heading "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's consolidated financial statements, and
the historical financial statements of the Other Founding Companies. See "Index
to Financial Statements."

F-3
<PAGE> 54

STAFFMARK, INC.

UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACQUISITION RELATED ADJUSTMENTS
----------------------------------------------------
PRO FORMA TOTAL
STAFFMARK FLEXIBLE(A) GLOBAL(B) ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES....................... $ 159,987 $8,376 $4,935 $ -- $ 13,311 $173,298
COST OF SERVICES....................... 124,515 6,753 3,697 -- 10,450 134,965
---------- ------ ------ ----- ---------- --------
Gross profit...................... 35,472 1,623 1,238 -- 2,861 38,333

OPERATING EXPENSES:
Selling, general and
administrative.................... 24,006 1,349 936 (172)(c) 2,113 26,119
Depreciation and amortization........ 1,749 52 13 37(d) 255 2,004
153(e)
---------- ------ ------ ----- ---------- --------
Operating income.................. 9,717 222 289 (18) 493 10,210
---------- ------ ------ ----- ---------- --------

OTHER INCOME (EXPENSE):
Interest expense..................... (507) (18) (12) (245)(f) (275) (782)
Other, net........................... 253 1 -- -- 1 254
---------- ------ ------ ----- ---------- --------

INCOME BEFORE INCOME TAXES............. 9,463 205 277 (263) 219 9,682

INCOME TAX PROVISION................... 3,880 -- 14 120(g) 134 4,014
---------- ------ ------ ----- ---------- --------
Net income........................ $ 5,583 $ 205 $ 263 $(383) $ 85 $ 5,668
========== ====== ====== ===== ========== ========

PRO FORMA NET INCOME PER COMMON SHARE:
PRIMARY................................................................................................. $ 0.39
========
FULLY DILUTED........................................................................................... $ 0.38
========

PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING:
PRIMARY................................................................................................. 14,562(h)
========
FULLY DILUTED........................................................................................... 14,816(i)
========
</TABLE>

The accompanying notes are an integral part of this statement.

F-4
<PAGE> 55

STAFFMARK, INC.

NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997

(a) Records the financial results of Flexible, which was acquired by StaffMark
effective March 1997, for the period from January 1, 1997 through the date
of the acquisition.

(b) Records the financial results of Global, which was acquired by StaffMark
effective April 1997, for the period from January 1, 1997 through the date
of the acquisition.

(c) Adjusts compensation to the level the owners of Flexible and Global have
agreed to receive from StaffMark subsequent to the acquisition.

(d) Adjustment to reflect amortization expense relating to the goodwill
recorded in conjunction with the acquisition of Flexible for the period
from January 1, 1997 through the date of the acquisition. Goodwill recorded
in conjunction with this acquisition was approximately $6.7 million which
is being amortized over thirty years.

(e) Adjustment to reflect amortization expense relating to the goodwill
recorded in conjunction with the acquisition of Global for the period from
January 1, 1997 through the date of the acquisition. Goodwill recorded in
conjunction with this acquisition was approximately $18.3 million which is
being amortized over thirty years.

(f) Adjustment to reflect interest expense relating to debt incurred in
conjunction with the acquisition of Global for the period from January 1,
1997 through the acquisition date. This pro forma expense calculation is
based on the $14.0 million borrowed by StaffMark under the Credit Facility.
Pro forma interest expense is computed based upon the applicable rate in
effect on the Credit Facility which, based upon the terms of the agreement,
would have approximated 7.0% during the pro forma period.

(g) Records the incremental provision to reflect federal and state income taxes
as if Flexible and Global had been C Corporations. This adjustment records
income tax expense at an effective combined tax rate of 39%, adjusted for
nondeductible goodwill amortization.

(h) Represents the actual weighted average primary shares outstanding for the
six months ended June 30, 1997 of 14,158,260, adjusted to reflect the
issuance as of January 1, 1997 of the 183,823 shares issued in conjunction
with the March 1997 acquisition of Flexible; and the 690,855 shares issued
in conjunction with the April 1997 acquisition of Global.

(i) Pro forma fully diluted weighted average shares outstanding for the six
months ended June 30, 1997 include the shares discussed in Note (h) above
and 253,837 shares representing the incremental fully dilutive effect of
the Company's outstanding stock options.

F-5
<PAGE> 56

STAFFMARK, INC.

UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION RELATED ADJUSTMENTS
-----------------------------------------
OTHER FOUNDING
STAFFMARK COMPANIES(A) ON CALL(B) FLEXIBLE(C)
--------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
SERVICE REVENUES........................... $30,556 $59,298 $1,127 $24,043
COST OF SERVICES........................... 24,028 46,779 945 19,673
------- ------- ------ -------
Gross profit............................. 6,528 12,519 182 4,370
OPERATING EXPENSES:
Selling, general and administrative...... 4,445 9,752 116 4,059
Depreciation and amortization............ 566 353 3 158
------- ------- ------ -------
Operating income....................... 1,517 2,414 63 153
------- ------- ------ -------
OTHER INCOME (EXPENSE):
Interest expense......................... (880) (201) 5 (67)
Other, net............................... (3) 401 -- --
------- ------- ------ -------
INCOME BEFORE INCOME TAXES................. 634 2,614 68 86
INCOME TAX PROVISION....................... -- 270 -- --
------- ------- ------ -------
Net income (loss).................. $ 634 $ 2,344 $ 68 $ 86
======= ======= ====== =======
PRO FORMA NET INCOME PER COMMON SHARE:
PRIMARY..................................
FULLY DILUTED............................
WEIGHTED AVERAGE SHARES OUTSTANDING:
PRIMARY..................................
FULLY DILUTED............................

<CAPTION>
ACQUISITION RELATED ADJUSTMENTS
--------------------------------------
PRO FORMA TOTAL
GLOBAL(D) ADJUSTMENTS ADJUSTMENTS PRO FORMA
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
SERVICE REVENUES........................... $8,408 $ -- $92,876 $123,432
COST OF SERVICES........................... 5,992 -- 73,389 97,417
------ ------- ------- --------
Gross profit............................. 2,416 -- 19,487 26,015
OPERATING EXPENSES:
Selling, general and administrative...... 1,591 (536)(e) 14,982 19,427
Depreciation and amortization............ 26 16(f) 973 1,539
112(g)
305(h)
------ ------- ------- --------
Operating income....................... 799 103 3,532 5,049
------ ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense......................... (9) (25)(i) (786) (1,666)
(489)(j)
Other, net............................... -- -- 401 398
------ ------- ------- --------
INCOME BEFORE INCOME TAXES................. 790 (411) 3,147 3,781
INCOME TAX PROVISION....................... 12 1,432(k) 1,714 1,714
------ ------- ------- --------
Net income (loss).................. $ 778 $(1,843) $ 1,433 $ 2,067
====== ======= ======= ========
PRO FORMA NET INCOME PER COMMON SHARE:
PRIMARY.................................. $ 0.23
========
FULLY DILUTED............................ $ 0.23
========
WEIGHTED AVERAGE SHARES OUTSTANDING:
PRIMARY.................................. 9,174(l)
========
FULLY DILUTED............................ 9,174(l)
========
</TABLE>

The accompanying notes are an integral part of this statement.

F-6
<PAGE> 57

STAFFMARK, INC.

NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996

(a) Records the financial results of the Other Founding Companies, which were
acquired by Brewer on October 2, 1996, for the period from January 1, 1996
through June 30, 1996.

(b) Records the financial results of On Call, which was acquired by Brewer
effective February 2, 1996, for the period from January 1, 1996 through the
date of the acquisition.

(d) Records the financial results of Global, which was acquired by StaffMark
effective April 1997.

(e) Adjusts compensation to the level the owners have agreed to receive from the
Founding Companies, Flexible, and Global subsequent to the Mergers and
respective acquisitions.

(f) Adjustment to reflect the amortization expense relating to the intangible
assets recorded in conjunction with the acquisition of On Call. Intangible
assets recorded in conjunction with the acquisition of On Call include
goodwill of approximately $3.1 million which is being amortized over thirty
years, a noncompete agreement of approximately $360,000 which is being
amortized over five years and deferred financing fees of approximately
$56,000 which are being amortized over five years.

(g) Adjustment to reflect amortization expense relating to the goodwill recorded
in conjunction with the acquisition of Flexible. Goodwill recorded in
conjunction with this acquisition was approximately $6.7 million which is
being amortized over thirty years.

(h) Adjustment to reflect amortization expense relating to the goodwill recorded
in conjunction with the acquisition of Global. Goodwill recorded in
conjunction with this acquisition was approximately $18.3 million which is
being amortized over thirty years.

(i) Adjustment to reflect interest expense relating to debt incurred in
conjunction with the acquisition of On Call for the period from January 1,
1996 through the date of the acquisition. This pro forma expense calculation
is based on the $3.0 million borrowed by Brewer under a term note in
conjunction with this acquisition. Pro forma interest expense is computed
based upon the applicable rate in effect on the term note which, based upon
the terms of the agreement, would have approximated 9.9% during the pro
forma period.

(j) Adjustment to reflect interest expense relating to debt incurred in
conjunction with the acquisition of Global. This pro forma expense
calculation is based on the $14.0 million borrowed by StaffMark under the
Credit Facility. Pro forma interest expense is computed based upon the
applicable rate in effect on the Credit Facility which, based upon the terms
of the agreement, would have approximated 7.0% during the pro forma period.

(k) Records the incremental provision to reflect federal and state income taxes
as if the Founding Companies, Flexible and Global had been C Corporations.
This adjustment records income tax expense at an effective combined tax rate
of 39%, adjusted for nondeductible goodwill amortization.

(l) Includes: (i) 1,355,000 shares issued by StaffMark prior to the Offering;
(ii) 5,618,249 shares issued to the stockholders of the Founding Companies
in connection with the Merger; (iii) 1,326,459 shares issued in conjunction
with the Offering to pay the cash portion of the consideration for the
Founding Companies; (iv) 183,823 shares issued in conjunction with the March
1997 acquisition of Flexible; and (v) 690,855 shares issued in conjunction
with the April 1997 acquisition of Global.

F-7
<PAGE> 58

STAFFMARK, INC.

UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION RELATED ADJUSTMENTS
-------------------------------------------------------------------------------
OTHER
FOUNDING PRO FORMA TOTAL
STAFFMARK COMPANIES(A) ON CALL(B) FLEXIBLE(C) GLOBAL(D) ADJUSTMENTS ADJUSTMENTS
--------- ------------ ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES............... $104,476 $93,969 $1,127 $49,342 $17,160 $ -- $161,598
COST OF SERVICES............... 81,607 73,865 946 39,928 12,109 -- 126,848
-------- ------- ------ ------- ------- ------- --------
Gross profit................. 22,869 20,104 181 9,414 5,051 -- 34,750
OPERATING EXPENSES:
Selling, general and
administrative............. 14,623 15,217 116 8,085 3,726 (1,137)(e) 26,007
Depreciation and
amortization............... 1,374 538 2 316 44 16(f) 1,728
202(g)
610(h)
-------- ------- ------ ------- ------- ------- --------
Operating income........... 6,872 4,349 63 1,013 1,281 309 7,015
-------- ------- ------ ------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense............. (1,376) (354) -- (121) (52) (27)(i) (1,533)
(979)(j)
Other, net................... 301 423 5 -- -- -- 428
-------- ------- ------ ------- ------- ------- --------
INCOME BEFORE INCOME TAXES..... 5,797 4,418 68 892 1,229 (697) 5,910
INCOME TAX PROVISION........... 1,774 465 -- -- 22 2,782(k) 3,269
-------- ------- ------ ------- ------- ------- --------
Net income................. $ 4,023 $ 3,953 $ 68 $ 892 $ 1,207 $(3,479) $ 2,641
======== ======= ====== ======= ======= ======= ========
PRO FORMA NET INCOME PER COMMON SHARE:
PRIMARY......................
FULLY DILUTED................
WEIGHTED AVERAGE SHARES OUTSTANDING:
PRIMARY......................
FULLY DILUTED................

PRO FORMA
---------
<S> <C>
SERVICE REVENUES............... $266,074
COST OF SERVICES............... 208,455
--------
Gross profit................. 57,619
OPERATING EXPENSES:
Selling, general and
administrative............. 40,630
Depreciation and
amortization............... 3,102

--------
Operating income........... 13,887
--------
OTHER INCOME (EXPENSE):
Interest expense............. (2,909)

Other, net................... 729
--------
INCOME BEFORE INCOME TAXES..... 11,707
INCOME TAX PROVISION........... 5,043
--------
Net income................. $ 6,664
========
PRO FORMA NET INCOME PER COMMON
PRIMARY...................... $ 0.64
========
FULLY DILUTED................ $ 0.64
========
WEIGHTED AVERAGE SHARES OUTSTAN
PRIMARY...................... 10,444(l)
========
FULLY DILUTED................ 10,444(1)
========
</TABLE>

The accompanying notes are an integral part of this statement.

F-8
<PAGE> 59

STAFFMARK, INC.

NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996

(a) Represents the audited financial results of the Other Founding
Companies, which were acquired by Brewer on October 2, 1996, for the
period from January 1, 1996, through the date of acquisition.

(b) Records the audited financial results of On Call, which was acquired
by Brewer effective February 1996, for the period from January 1, 1996
through the date of acquisition.

(d) Records the audited financial results of Global, which was acquired by
StaffMark effective April 1997.

(e) Adjusts compensation to the level the owners have agreed to receive
from the Founding Companies, Flexible and Global subsequent to the
Mergers and respective acquisitions.

(f) Adjustment to reflect amortization expense relating to the intangible
assets recorded in conjunction with the acquisition of On Call for the
period from January 1, 1996 through the date of acquisition.
Intangible assets recorded in conjunction with this acquisition
include goodwill of approximately $3.1 million which is being
amortized over thirty years, a noncompete agreement of approximately
$360,000 which is being amortized over five years and deferred
financing fees of approximately $56,000 which is being amortized over
five years.

(g) Adjustment to reflect amortization expense relating to the goodwill
recorded in conjunction with the acquisition of Flexible for fiscal
year 1996. Goodwill recorded in conjunction with this acquisition was
approximately $6.7 million which is being amortized over thirty years.

(h) Adjustment to reflect amortization expense relating to the goodwill
recorded in conjunction with the acquisition of Global for fiscal year
1996. Goodwill recorded in conjunction with this acquisition was
approximately $18.3 million which is being amortized over thirty
years.

(i) Adjustment to reflect interest expense relating to debt incurred in
conjunction with the acquisition of On Call for the period from
January 1, 1996 through the date of acquisition. This pro forma
expense calculation is based on the $3.0 million borrowed by Brewer
under a term note in conjunction with this acquisition. Pro forma
interest expense is computed based upon the applicable variable rate
in effect on the term note which, based upon the terms of the
agreement, would have approximated 9.9% during the pro forma period.

(j) Adjustment to reflect interest expense relating to debt incurred in
conjunction with the acquisition of Global for fiscal year 1996. This
pro forma expense calculation is based on the $14.0 million borrowed
by StaffMark under the Credit Facility. Pro forma interest expense is
computed based upon the applicable rate in effect on the Credit
Facility which, based upon the terms of the agreement, would have
approximated 7.0% during the pro forma period.

(k) Records the incremental provision to reflect federal and state income
taxes as if the Founding Companies, Flexible and Global had been
subchapter C Corporations. This adjustment records income tax expense
at an effective combined tax rate of 39%, adjusted for nondeductible
goodwill amortization.

(l) Includes: (i) 1,355,000 shares issued by StaffMark prior to the
Initial Public Offering; (ii) 5,618,249 shares issued to the
stockholders of the Founding Companies in connection with the
Mergers; (iii) the weighted average of 1,326,459 shares issued in
conjunction with the Initial Public Offering to pay the cash portion
of the consideration for the Founding Companies for the period from
January 1, 1996 through the date of the Initial Public Offering and
6,325,000 shares issued in connection with the Initial Public
Offering for the period from October 2, 1996 through December 31,
1996; (iv) 19,794 shares representing the weighted average shares
issued in conjunction with the November 1996 acquisition of
Technology Source; (v) 183,823 shares issued in conjunction with the
March 1997 acquisition of Flexible; and (vi) 690,855 shares issued in
conjunction with the April 1997 acquisition of Global.

F-9
<PAGE> 60

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
of StaffMark, Inc.:

We have audited the accompanying consolidated balance sheets of StaffMark,
Inc. (the "Company", a Delaware Corporation) and Subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of StaffMark, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
February 5, 1997.

F-10
<PAGE> 61

STAFFMARK, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................ $ 319,159 $13,856,422 $ 2,639,536
Accounts receivable, net of allowance for
doubtful accounts of $214,187, $441,397 and
$1,125,926.................................... 4,798,476 21,064,875 41,060,043
Advances to officers and employees............... -- -- 175,635
Deferred income taxes............................ -- -- 753,515
Prepaid expenses and other....................... 253,143 1,577,508 1,930,467
----------- ----------- ------------
Total current assets..................... 5,370,778 36,498,805 46,559,196
PROPERTY AND EQUIPMENT, net........................ 796,930 4,003,638 6,663,478
INTANGIBLE ASSETS, net............................. 15,555,459 30,512,571 86,734,041
ADVANCES TO OFFICERS AND EMPLOYEES................. -- 160,000 984,365
OTHER ASSETS....................................... 29,192 323,217 967,362
----------- ----------- ------------
$21,752,359 $71,498,231 $141,908,442
=========== =========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities... $ 648,106 $ 1,907,331 $ 3,128,388
Outstanding checks............................... 226,307 176,156 --
Payroll and related liabilities.................. 1,020,973 3,515,743 11,649,723
Reserve for workers' compensation claims......... 775,801 3,771,398 6,556,738
Line of credit................................... 309,068 -- --
Current maturities of long-term debt............. 882,487 -- --
Income taxes payable............................. -- 2,415,203 676,856
Accrued interest................................. -- -- 459,743
Deferred income taxes............................ -- 662,505 --
----------- ----------- ------------
Total current liabilities................ 3,862,742 12,448,336 22,471,448
LONG-TERM DEBT, less current maturities............ 15,103,831 -- 43,430,000
OTHER LONG-TERM LIABILITIES........................ -- 518,669 136,075
DEFERRED INCOME TAXES.............................. -- 421,147 396,226
COMMITMENTS AND CONTINGENCIES (Notes 12 through 14)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
shares of 1,000,000; no shares issued or
outstanding................................... -- -- --
Common stock, $.01 par value in 1995 and 1996;
authorized shares of 10,000 in 1995 and
26,000,000 in 1996 and 1997; shares issued and
outstanding of 117.5 in 1995; 13,417,012 in
1996 and 14,509,634 in 1997................... 1 134,170 145,096
Paid-in capital.................................. 98,059 55,379,391 67,149,886
Retained earnings................................ 2,687,726 2,596,518 8,179,711
----------- ----------- ------------
Total stockholders' equity............... 2,785,786 58,110,079 75,474,693
----------- ----------- ------------
$21,752,359 $71,498,231 $141,908,442
=========== =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.

F-11
<PAGE> 62

STAFFMARK, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FISCAL YEARS SIX MONTHS ENDED JUNE 30
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES........... $27,894,455 $43,874,246 $104,476,109 $30,556,381 $159,987,151
COST OF SERVICES........... 22,906,230 35,115,355 81,606,986 24,027,885 124,515,015
----------- ----------- ------------ ----------- ------------
Gross profit.......... 4,988,225 8,758,891 22,869,123 6,528,496 35,472,136
OPERATING EXPENSES:
Selling, general and
administrative........ 3,483,070 5,804,348 14,623,615 4,445,462 24,005,794
Depreciation and
amortization.......... 255,895 590,066 1,373,954 565,974 1,749,616
----------- ----------- ------------ ----------- ------------
Operating income...... 1,249,260 2,364,477 6,871,554 1,517,060 9,716,726
OTHER INCOME (EXPENSE):
Interest expense......... (92,132) (800,704) (1,375,879) (879,924) (507,226)
Other, net............... 19,653 22,765 300,954 (3,182) 253,539
----------- ----------- ------------ ----------- ------------
Income before
provision for income
taxes............... 1,176,781 1,586,538 5,796,629 633,954 9,463,039
PROVISION FOR INCOME
TAXES.................... -- -- 1,773,833 -- 3,879,846
----------- ----------- ------------ ----------- ------------
Net income....... $ 1,176,781 $ 1,586,538 $ 4,022,796 $ 633,954 $ 5,583,193
=========== =========== ============ =========== ============
Earnings Per Share......... $ 0.39
============
Unaudited Pro Forma Data
(Note 15):
Pro forma net income..... $ 6,368,000
============
Pro forma earnings per
share................. $ 0.67
============
Weighted average common
shares outstanding.... 9,545,558
============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.

F-12
<PAGE> 63

STAFFMARK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 2, 1994.................................. 117.5 $ 40,424 $ -- $ 1,069,269 $ 1,109,693
Net income.............................................. -- -- -- 1,176,781 1,176,781
Dividends............................................... -- -- -- (176,271) (176,271)
------------- -------- ------------ ----------- ------------
BALANCE, January 1, 1995.................................. 117.5 40,424 -- 2,069,779 2,110,203
Change in the par value stock from no par to $.01 per
share................................................. -- (40,423) 40,423 -- --
Net income.............................................. -- -- -- 1,586,538 1,586,538
Contribution............................................ -- -- 57,636 -- 57,636
Dividends............................................... -- -- -- (968,591) (968,591)
------------- -------- ------------ ----------- ------------
BALANCE, December 31, 1995................................ 117.5 1 98,059 2,687,726 2,785,786
Dividends declared:
Cash.................................................. -- -- -- (1,015,092) (1,015,092)
Property.............................................. -- -- -- (73,700) (73,700)
Shares issued in conjunction with purchase of On Call... 10.0 -- 319,149 -- 319,149
Exercise of stock options............................... 7.5 -- 160,000 -- 160,000
Issuance of common stock upon formation of StaffMark,
Inc. ................................................. 1,000.0 10 -- -- 10
Split of StaffMark, Inc. common stock................... 1,354,000.0 13,540 (13,540) -- --
Issuance of common stock, net of offering costs......... 6,325,000.0 63,250 66,518,234 -- 66,581,484
Conversion of Brewer common stock into common stock of
StaffMark, Inc. ...................................... 1,934,865.0 19,349 (2,969,349) -- (2,950,000)
Acquisition of Other Founding Companies................. 3,683,249.0 36,832 (10,940,326) -- (10,903,494)
Reclassification of retained earnings in conjunction
with the conversion from S Corporation to C
Corporation status for tax reporting purposes......... -- -- 3,025,212 (3,025,212) --
Establishment of deferred income tax liabilities in
conjunction with the conversion from S Corporation to
C Corporation status for tax reporting purposes....... -- -- (1,839,706) -- (1,839,706)
Shares issued in conjunction with purchase of Technology
Source................................................ 118,763.0 1,188 1,021,658 -- 1,022,846
Net income.............................................. -- -- -- 4,022,796 4,022,796
------------- -------- ------------ ----------- ------------
BALANCE, December 31, 1996................................ 13,417,012.0 134,170 55,379,391 2,596,518 58,110,079
Shares issued in conjunction with acquisitions
(unaudited)........................................... 1,092,622.0 10,926 11,770,495 -- 11,781,421
Net Income (Unaudited).................................. -- -- -- 5,583,193 5,583,193
------------- -------- ------------ ----------- ------------
BALANCE, June 30, 1997 (Unaudited)........................ 14,509,634.0 $145,096 $ 67,149,886 $ 8,179,711 $ 75,474,693
============= ======== ============ =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.

F-13
<PAGE> 64

STAFFMARK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
---------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $1,176,781 $ 1,586,538 $ 4,022,796 $ 633,954 $ 5,583,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 255,895 590,066 1,373,954 565,974 1,749,616
Provision for bad debts........................ 24,058 169,879 206,123 57,932 148,528
Net (gain) loss on sale of property and
equipment.................................... (5,066) 4,095 (24,985) -- --
Change in operating accounts, net of effects of
acquisitions:
Accounts receivable.......................... (963,971) (334,940) (1,547,830) (1,246,671) (8,610,894)
Prepaid expenses and other................... (49,960) (44,025) (207,421) (209,763) (49,613)
Other assets................................. (16,152) (6,101) (421,792) (2,095) 657,973
Accounts payable and other accrued
liabilities................................ 88,096 58,395 (439,051) (249,152) (1,285,294)
Outstanding checks........................... 66,468 (508,117) (305,921) 115,345 (176,156)
Payroll and related liabilities.............. 241,001 (270,377) (2,228,932) 250,733 5,243,007
Reserve for workers' compensation claims..... 76,391 359,810 94,496 (26,404) 1,066,629
Income taxes payable/receivable.............. -- -- 1,340,056 -- (1,906,114)
Deferred income taxes........................ -- -- -- -- (2,278,141)
---------- ------------ ------------ ----------- ------------
Net cash provided by operating
activities............................. 893,541 1,605,223 1,861,493 (110,147) 142,734
---------- ------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Founding Companies, net of cash
acquired..................................... -- -- (14,989,436) -- --
Purchases of businesses, net of cash
acquired..................................... -- (11,500,000) (12,322,832) (3,000,000) (50,930,702)
Capital expenditures........................... (253,373) (414,569) (664,996) (234,143) (1,923,674)
Acquisition of training licenses and rights.... -- (65,262) -- -- --
Receipts on notes receivable................... 110,000 -- -- -- --
Advances of notes receivable................... (220,445) (40,000) -- -- --
Proceeds from sale of property and equipment... 19,067 16,652 -- -- --
---------- ------------ ------------ ----------- ------------
Net cash used in investing activities.... (344,751) (12,003,179) (27,977,264) (3,234,143) (52,854,376)
---------- ------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of offering
costs........................................ -- -- 66,581,484 -- --
Proceeds from borrowings....................... 1,584,500 13,366,512 5,875,106 4,736,794 43,430,000
Payments on debt and borrowings................ (1,920,296) (1,919,865) (32,015,298) (860,204) (1,935,244)
Distributions to stockholders.................. (176,271) (623,484) (1,015,092) (17,000) --
Contribution from stockholder.................. -- 57,636 -- -- --
Proceeds from exercise of stock options........ -- -- 160,000 -- --
Deferred financing costs....................... -- (271,750) (398,708) (56,250) --
Other, net..................................... -- -- 465,542 -- --
---------- ------------ ------------ ----------- ------------
Net cash (used in) provided by financing
activities............................. (512,067) 10,609,049 39,653,034 3,803,340 41,494,756
---------- ------------ ------------ ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........ 36,723 211,093 13,537,263 459,050 (11,216,886)
CASH AND CASH EQUIVALENTS, beginning of period... 71,343 108,066 319,159 319,159 13,856,422
---------- ------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of period......... $ 108,066 $ 319,159 $ 13,856,422 $ 778,209 $ 2,639,536
========== ============ ============ =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.................................. $ 107,222 $ 427,456 $ 1,629,958 $ 1,042,906 $ 326,243
========== ============ ============ =========== ============
Income taxes paid.............................. $ -- $ -- $ 344,000 $ -- $ 4,533,450
========== ============ ============ =========== ============
Non-cash transactions:
Notes payable issued to purchase
businesses................................. $ -- $ 3,100,000 $ -- $ -- $ --
========== ============ ============ =========== ============
Distribution of notes receivable to
stockholders............................... $ -- $ 345,107 $ -- $ -- $ --
========== ============ ============ =========== ============
Distribution of property to stockholders..... $ -- $ -- $ 73,700 $ -- $ --
========== ============ ============ =========== ============
Issuance of Common Stock in conjunction with
acquisitions............................... $ -- $ -- $ 320,000 $ 320,000 $ 11,781,421
========== ============ ============ =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements

F-14
<PAGE> 65

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

In March 1996, StaffMark, Inc. (the "Company" or "StaffMark") was founded
to create a national company to provide temporary staffing services. Effective
October 2, 1996, the Company acquired six local and regional temporary staffing
companies (the "Founding Companies") and completed an initial public offering of
its common stock (the "Offering"). Based on the provisions of the Securities and
Exchange Commission's Staff Accounting Bulletin ("SAB") No. 97, Brewer Personnel
Services, Inc. ("Brewer") was designated as the acquirer, for financial
reporting purposes, of The Prostaff Companies, The Maxwell Companies, Human
Resources, Inc. , First Choice Staffing, Inc. and The Blethen Group
(collectively referred to as the "Other Founding Companies"). As Brewer was
designated as the acquirer for financial reporting purposes, the accompanying
financial statements reflect the results of its operations for the years ended
January 1, 1995 and December 31, 1995. The results of operations for 1996
represent a combination of Brewer's results for the nine months ended September
30, 1996 and the Company's consolidated results of operations for the three
months ended December 31, 1996. Based on the applicable provisions of SAB No.
97, the acquisition of assets and assumption of liabilities of the Other
Founding Companies are reflected at their historical cost. All significant
intercompany transactions have been eliminated in the accompanying consolidated
financial statements. References to "the Company" relate to Brewer for the
periods prior to the acquisitions discussed above and relate to StaffMark, Inc.
and its consolidated subsidiaries subsequent to that date.

As of June 30, 1997, StaffMark operated offices in 19 states located
throughout the United States and provides temporary staffing in the commercial,
professional/information technology and specialty medical staffing service
lines. StaffMark extends trade credit to customers representing a variety of
industries. There are no individual customers that account for more than 10% of
service revenues of StaffMark in any of the periods presented.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Fiscal Periods --

Prior to the Offering, the fiscal years of Brewer ended on the Sunday
closest to December 31. The fiscal years 1994 and 1995 each included 52 weeks.
Upon completion of the Offering, StaffMark established a calendar year reporting
period. The unaudited interim periods for the six month periods ended June 30,
1996 and 1997 included in the accompanying financial statements each included 26
weeks.

Classification of Prior Year Balances --

Certain reclassifications have been made to prior year balances in order to
conform with the current year presentation.

Unaudited Interim Financial Statements --

The accompanying unaudited interim financial statements as of June 30, 1997
and for the six months ended June 30, 1996 and 1997 and related disclosures have
not been audited by independent public accountants. However, they have been
prepared in conformity with the accounting principles stated in the audited
financial statements for the three years in the period ended December 31, 1996,
and include all adjustments (which were of a normal, recurring nature) which, in
the opinion of management, are necessary to present fairly the financial
position of the Company and the results of operations and cash flows for each of
the periods presented. The operating results for the interim periods presented
are not necessarily indicative of results for the full year.

F-15
<PAGE> 66

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates --

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in preparing the accompanying consolidated financial
statements are based upon management's evaluation of the relevant facts and
circumstances as of the date of the financial statements. However, actual
results may differ from the estimates and assumptions used in preparing these
financial statements.

Cash and Cash Equivalents --

For statement of cash flow purposes, StaffMark considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.

Property and Equipment --

Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the assets
which are as follows:

<TABLE>
<S> <C>
Furniture, fixtures and equipment........................... 5-7 years
Computer equipment and software............................. 3-5 years
Leasehold improvements...................................... 3-15 years
</TABLE>

Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the related cost and accumulated depreciation or amortization are
removed from the balance sheet and any resultant gain or loss is recorded.

Intangible Assets --

Intangible assets primarily consist of goodwill, which is amortized using
the straight-line method over 30 years. Deferred financing costs are amortized
over the life of the respective debt obligation using a method which
approximates the interest method. Intangibles associated with non-compete
agreements are amortized using the straight-line method over the life of the
respective agreements.

Income Taxes --

Prior to the acquisition of the Other Founding Companies, Brewer was an S
Corporation for income tax reporting purposes. Accordingly, no provision for
federal or state income taxes related to the income for those periods is
reflected in the accompanying consolidated financial statements as such taxes
are liabilities of the individual stockholders. The S Corporation status of
Brewer terminated upon the effective date of the acquisition of the Other
Founding Companies.

Subsequent to the acquisition of the Other Founding Companies, income taxes
have been provided based upon the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires recognition of deferred income taxes using the liability method.
Deferred income taxes result from the effect of transactions which are
recognized in different periods for financial and tax reporting purposes.
Deferred income taxes are recognized for the tax consequences of such temporary
differences by applying enacted statutory tax rates to differences between the
financial reporting and the tax bases of existing assets and liabilities.

Revenue Recognition --

Service revenues are recognized as income at the time staffing services are
provided.

F-16
<PAGE> 67

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Workers' Compensation --

StaffMark self-insures certain risks related to workers' compensation
claims. The estimated costs of existing and future claims are accrued as
incidents occur based upon historical loss development trends and may be
subsequently revised based on developments relating to such claims. StaffMark
has engaged the services of a third party actuary to assist with the development
of these cost estimates.

Fair Value of Financial Instruments --

StaffMark's financial instruments include cash and cash equivalents and its
debt obligations. Management believes that these financial instruments bear
interest at rates which approximate prevailing market rates for instruments with
similar characteristics and, accordingly, that the carrying values for these
instruments are reasonable estimates of fair value.

Accounting for Stock Options --

During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which encourages all companies to
recognize compensation expense based on the fair value, at grant date, of
instruments issued pursuant to stock-based compensation plans. SFAS No. 123
requires the fair value of the instruments granted, which is measured pursuant
to the provisions of the statement, to be recognized as compensation expense
over the vesting period of the instrument. However, the statement also allows
companies to continue to measure compensation costs for these instruments using
the method of accounting prescribed by Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees." Companies electing to
account for stock-based compensation plans pursuant to the provisions of APB 25
must make pro forma disclosures of net income as if the fair value method
defined in SFAS No. 123 had been applied. StaffMark has elected to account for
stock options under the provisions of APB 25 and has included the disclosures
required by SFAS No. 123 in Note 11.

Impairment of Long-Lived Assets --

StaffMark regularly evaluates whether events and circumstances have
occurred which may indicate that the carrying amount of intangible or other
long-lived assets warrant revision or may not be recoverable. When factors
indicate that an asset or assets should be evaluated for possible impairment, an
evaluation would be performed pursuant to the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market value or discounted cash flow
value is required. As of December 31, 1995 and 1996, management considered
StaffMark's intangible and other long-lived assets to be fully recoverable.

3. BUSINESS COMBINATIONS:

Brewer Acquisitions --

On July 10, 1995, Brewer acquired the stock of E.P. Enterprises
Corporation, d/b/a Caldwell Services, Inc. ("Caldwell"). Caldwell is engaged in
providing temporary personnel services through five staffing offices located in
Georgia. The acquisition has been accounted for as a purchase, and the results
of operations of Caldwell have been included in the accompanying consolidated
financial statements since the date of acquisition. The cost of the acquisition
has been allocated on the basis of the estimated fair market value of the assets
and liabilities acquired.

Total consideration paid for Caldwell was approximately $17.3 million. The
purchase price included cash of $11.5 million, a note to the seller of $3.1
million and the assumption of certain liabilities of Caldwell. The assets
acquired have been recorded at historical, depreciated cost, which approximated
fair value as of the

F-17
<PAGE> 68

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquisition date, with the remaining acquisition costs of approximately $15.3
million being recorded as goodwill.

On February 2, 1996, Brewer acquired the stock of On Call Employment
Services, Inc. ("On Call"). On Call is engaged in providing temporary personnel
services through four staffing offices in Colorado. The acquisition has been
accounted for as a purchase, and the results of operations of On Call have been
included in the accompanying consolidated financial statements since the date of
acquisition. The cost of the acquisition has been allocated on the basis of the
estimated fair market value of the assets and liabilities acquired.

Total consideration paid for On Call was approximately $3.8 million which
was comprised of cash totaling $3 million, including $360,000 associated with a
non-compete agreement, 10 shares of Brewer's common stock valued at
approximately $320,000 and the assumption of liabilities totaling approximately
$480,000. The assets acquired have been recorded at historical, depreciated
cost, which approximated fair value as of the acquisition date, with the
remaining acquisition costs of approximately $3.1 million being recorded as
goodwill.

Acquisition of the Other Founding Companies --

Simultaneously with the closing of the Offering, StaffMark acquired by
merger all of the issued and outstanding stock of the Founding Companies. The
aggregate consideration paid in conjunction with the mergers with the Other
Founding Companies consisted of approximately $13.0 million in cash and
3,683,249 shares of common stock. The consideration paid in conjunction with the
merger with Brewer consisted of approximately $2.9 million in cash and 1,935,000
shares of common stock.

Based upon the applicable provisions of SAB No. 97, these acquisitions have
been accounted for as combinations at historical cost. Accordingly, the
consideration paid to the Founding Companies as reflected in the accompanying
consolidated financial statements represents the carryover basis in the net
assets of the Founding Companies, reduced by the cash consideration paid.

StaffMark Acquisitions --

Between the date of the Offering and December 31, 1996, StaffMark completed
three acquisitions accounted for as purchases. The aggregate consideration paid
for The Technology Source, L.L.C. ("Technology"), Chandler Enterprises, Inc.
d/b/a Advantage Staffing ("Advantage") and Tom Bain Personnel, Inc. ("Tom Bain")
included $9.6 million in cash and 118,763 shares of StaffMark's common stock.
The operating results of these companies have been included since the effective
date of their acquisitions. The costs of these acquisitions have been allocated
on the basis of estimated fair market value of the assets acquired. The tangible
assets acquired have been recorded at historical, depreciated cost, which
approximated fair value as of the acquisition date, with the remaining
acquisition costs being recorded as goodwill.

The operating results of Technology, Advantage and Tom Bain prior to their
acquisitions are not material to StaffMark's 1996 consolidated statements of
income and, accordingly, have not been reflected in the pro forma results shown
below.

Pro Forma Operating Results --

The unaudited consolidated results of operations on a pro forma basis as
though the Other Founding Companies, Caldwell and On Call had been acquired as
of the beginning of 1995 are shown below. Note that the pro forma information
presented below does not reflect income tax expense as if the Company had been a
C Corporation for income tax reporting purposes for the entire periods presented
or the reductions in salaries of certain owners of the Founding Companies which
have been agreed to in conjunction with the acquisitions

F-18
<PAGE> 69

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

discussed in Note 1. See the accompanying consolidated statements of income and
Note 15 for a presentation of 1996 pro forma information which reflects these
adjustments:

<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Revenues................................................ $171,463,305 $200,020,807
============ ============
Net income.............................................. $ 3,742,274 $ 8,020,520
============ ============
</TABLE>

4. ACCOUNTS RECEIVABLE:

Included in accounts receivable in the accompanying consolidated balance
sheets are unbilled amounts of approximately $541,906 and $1,195,370 at December
31, 1995 and 1996, respectively. StaffMark maintains allowances for potential
losses which management believes are adequate to absorb losses to be incurred in
realizing the amounts recorded in the accompanying consolidated financial
statements.

The following are the changes in the allowance for doubtful accounts:

<TABLE>
<CAPTION>
FISCAL YEARS
-----------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year............................ $10,250 $ 34,308 $214,187
Increases relating to acquisitions...................... -- 10,000 252,216
Provision for bad debts................................. 24,058 169,879 206,123
Charge offs, net of recoveries.......................... -- -- 231,129
------- -------- --------
Balance at end of year.................................. $34,308 $214,187 $441,397
======= ======== ========
</TABLE>

5. INTANGIBLE ASSETS:

Intangible assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Goodwill................................................... $15,356,334 $30,506,256
Deferred financing costs................................... 271,750 342,457
Non-compete agreements..................................... 299,010 889,647
Other...................................................... 140,262 160,262
----------- -----------
16,067,356 31,898,622
Less accumulated amortization.............................. 511,897 1,386,051
----------- -----------
$15,555,459 $30,512,571
=========== ===========
</TABLE>

Amortization expense related to intangible assets for the years ended
December 31, 1995 and 1996, totaled approximately $391,207 and $879,288,
respectively.

F-19
<PAGE> 70

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY AND EQUIPMENT:

Components of property and equipment are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Furniture, fixtures and equipment........................... $ 553,328 $2,923,451
Computer equipment and software............................. 749,750 4,033,251
Leasehold improvements...................................... 31,483 501,525
---------- ----------
1,334,561 7,458,227
Less accumulated depreciation and amortization.............. 537,631 3,454,589
---------- ----------
$ 796,930 $4,003,638
========== ==========
</TABLE>

Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1995 and 1996, totaled approximately $198,859 and
$494,666, respectively.

7. DEBT:

Proceeds from the Offering were used to repay all debt obligations of
StaffMark, Brewer and the Other Founding Companies.

As of December 31, 1996 StaffMark had established a $50 million credit
facility (the "Credit Facility") with Mercantile Bank of St. Louis, National
Association ("Mercantile") to be used for working capital and other general
corporate purposes, including future acquisitions. The Credit Facility included
a $20 million revolving line of credit and a $30 million acquisition facility.
The Credit Facility matures on October 4, 2001 and interest on any borrowings
will be computed at StaffMark's option at either LIBOR or the bank's prime rate
and incrementally adjusted based on StaffMark's operating leverage ratios.

Through March 31, 1997, StaffMark was obligated to pay a commitment fee
equal to 0.25% per annum multiplied by the total amount of the Credit Facility.
Subsequent to March 31, 1997, the quarterly commitment fee is determined by
multiplying the average daily unused portion of the total Credit Facility by a
percentage which varies from 0.25% to 0.375% based on the Company's operating
leverage ratios. The Credit Facility is secured by all assets of StaffMark and a
pledge of 100% of the stock of all the subsidiaries. No funds had been borrowed
on the Credit Facility as of December 31, 1996.

As of December 31, 1995, debt consisted of the following:

<TABLE>
<S> <C>
Term loan note with Boatmen's. Interest payable monthly at a
variable rate which averaged 9.56% during the year ended
December 31, 1995. Principal was due in quarterly
installments beginning October 1, 1995 through maturity on
June 30, 2001. Note was secured by the assets and common
stock of Brewer and partially guaranteed by certain
stockholders of Brewer. .................................. $12,750,000
Note payable to the previous owner of Caldwell, interest at
8.00%, payable quarterly. Principal was to be paid in
equal annual installments beginning June 30, 1998 through
June 30, 2001 or in full upon a change in control of
Brewer. Note was secured by a lien on the assets of Brewer
and guaranteed by certain stockholders of Brewer. ........ 3,100,000
Other....................................................... 445,386
-----------
16,295,386
Less short-term borrowings, including current maturities.... 1,191,555
-----------
$15,103,831
===========
</TABLE>

F-20
<PAGE> 71

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES:

The income tax provision (benefit) for the year ended December 31, 1996
consisted of the following:

<TABLE>
<S> <C>
Current:
Federal................................................... $2,022,827
State..................................................... 392,376
----------
2,415,203
----------
Deferred:
Federal................................................... (532,521)
State..................................................... (108,849)
----------
(641,370)
----------
$1,773,833
==========
</TABLE>

The components of deferred income tax assets and liabilities as of December
31, 1996 were as follows:

<TABLE>
<S> <C>
Deferred income tax assets:
Workers' compensation reserves............................ $ 797,321
Non-compete and deferred compensation agreements.......... 156,912
Other expense accruals.................................... 424,292
----------
Total deferred income tax assets.................. 1,378,525
Deferred income tax liabilities:
Change in income tax accounting method from cash to
accrual basis in conjunction with termination of S
Corporation status..................................... 1,884,118
Depreciation and amortization............................. 280,609
Other..................................................... 297,450
----------
Total deferred income tax liabilities............. 2,462,177
----------
$1,083,652
==========
</TABLE>

Components of the net deferred tax liabilities reported in the accompanying
consolidated balance sheet were as follows as of December 31, 1996:

<TABLE>
<CAPTION>
CURRENT LONG-TERM
---------- ---------
<S> <C> <C>
Assets...................................................... $1,221,613 $156,912
Liabilities................................................. 1,884,118 578,059
---------- --------
$ 662,505 $421,147
========== ========
</TABLE>

A valuation allowance for the deferred tax assets has not been recorded in
the accompanying consolidated balance sheet because management believes that all
deferred tax assets are more likely than not to be recovered. In assessing the
realizability of deferred income tax assets, management has considered scheduled
reversals of the deferred income tax liabilities and projected future taxable
income.

F-21
<PAGE> 72

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The differences in income taxes determined by applying the statutory
federal tax rate of 34% to income before income taxes and the amounts recorded
in the accompanying consolidated statement of income for 1996 result from the
following:

<TABLE>
<CAPTION>
AMOUNT RATE
---------- ----
<S> <C> <C>
Tax at statutory rate....................................... $1,970,854 34.0%
Add (deduct):
Effect of S Corporation income............................ (484,934) (8.4)
State income taxes, net of federal tax benefit............ 185,542 3.2
Non-deductible amortization............................... 52,204 .9
Other, net................................................ 50,167 .9
---------- ----
$1,773,833 30.6%
========== ====
</TABLE>

9. WORKERS' COMPENSATION:

StaffMark is self-insured for certain workers' compensation claims and is
regulated by various state-administered workers' compensation insurance
commissions. StaffMark has purchased insurance for medical claims which exceed
certain thresholds and is required in certain states to maintain letters of
credit to cover any potential unpaid claims. At December 31, 1996, these letters
of credit totaled $2,300,000.

10. EMPLOYEE BENEFIT PLANS:

Certain of the Founding Companies maintain employee benefit plans, some of
which allow eligible employees to defer a portion of their income through
contributions to the plans. Under provisions of certain of these plans,
StaffMark matches a percentage of the employee contributions, up to a maximum as
specified in the individual plan, and may contribute additional amounts at the
discretion of management. Contributions by StaffMark to the various plans were
approximately $23,000 for the year ended December 31, 1996.

11. COMMON STOCK AND STOCK OPTIONS:

Common Stock --

In conjunction with the organization and initial capitalization, StaffMark
issued 1,000 shares of common stock at a par value of $.01 per share. In June
1996, StaffMark's Board of Directors declared a 1,355-for-one stock split. The
effect of this stock split has been reflected as a reduction of paid-in-capital
and an increase in common stock in the accompanying consolidated financial
statements.

StaffMark issued 5,618,249 shares of common stock to the stockholders of
the Founding Companies and issued 6,325,000 shares of common stock to the public
in conjunction with the Offering. StaffMark also issued 118,763 shares of common
stock in conjunction with business acquisitions.

F-22
<PAGE> 73

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock Options --

Prior to the Offering, Brewer granted stock options to certain key
employees. These options were granted at fair value as determined by management,
were exercisable in installments and expired from June 30, 1999 to February 26,
2001. A summary of Brewer's stock option activity is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER PRICE PER
OPTION OPTION
------------ ---------
<S> <C> <C>
Outstanding, January 1, 1995................................ 5.0 $16,000
Granted................................................... 7.5 30,666
---- -------
Outstanding, December 31, 1995.............................. 12.5 24,800
Granted................................................... 1.0 35,000
Exercised................................................. (7.5) 21,333
Forfeited................................................. (5.0) 30,000
---- -------
Outstanding prior to conversion to StaffMark options........ 1.0 $35,000
==== =======
</TABLE>

In June 1996, StaffMark's Board of Directors and stockholders approved
StaffMark's 1996 Stock Option Plan (the "Plan"). The maximum number of shares of
StaffMark's common stock that may be issued under the Plan is approximately
1,600,000. As of December 31, 1996 approximately 740,000 shares have been
reserved for future options. Options granted under the Plan generally become 40%
vested after two years and then vest 20% in each of the next three years. Under
the Plan, the exercise price of the option equals the market value of
StaffMark's common stock on the date of the grant, and the maximum term for each
option is 10 years.

A summary of StaffMark's stock option activity is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER PRICE PER
OPTION OPTION
------------ ----------
<S> <C> <C>
Outstanding Brewer options prior to conversion to
StaffMark options........................................ 1 $35,000.00
Conversion of Brewer options............................. 16,397 2.13
Granted.................................................. 867,928 12.01
Forfeited................................................ (14,550) 12.00
------- ----------
Outstanding, December 31, 1996............................. 869,776 $ 11.82
======= ==========
</TABLE>

The following is a summary of stock options outstanding as of December 31,
1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------- -----------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
OPTIONS RANGE OF REMAINING EXERCISE OPTIONS EXERCISE
OUTSTANDING EXERCISE PRICES CONTRACTUAL LIFE PER SHARE EXERCISABLE PER SHARE
- ----------- --------------- ---------------- ---------- ----------- ---------
<C> <C> <C> <C> <C> <C>
16,398 $2.13 1.17 years $ 2.13 -- $ --
853,378 $11.38 -- 12.75 4.37 years 12.01 35,000 12.00
------- ---------- ------ ------ ------
869,776 4.31 years $11.82 35,000 $12.00
======= ========== ====== ====== ======
</TABLE>

F-23
<PAGE> 74

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As discussed in Note 2, StaffMark has elected to account for its stock
options under the provisions of APB 25. Accordingly, no compensation expense has
been recognized in the accompanying consolidated statements of income. However,
pursuant to the requirements of SFAS No. 123, the following disclosures are
presented to reflect StaffMark's pro forma net income for the years ended
December 31, 1995 and 1996, as if the fair value method of accounting prescribed
by SFAS No. 123 had been used. In preparing the pro forma disclosures, StaffMark
determined the value of all options granted from January 1, 1995 through the
Offering date using the minimum value method, as discussed in SFAS No. 123. For
stock options granted from the Offering date to December 31, 1996, the fair
value was estimated on the grant date using the Black-Scholes option-pricing
model. These fair value calculations were based on the following assumptions:

<TABLE>
<CAPTION>
FISCAL YEARS
----------------------
1995 1996
--------- ---------
<S> <C> <C>
Weighted average risk-free interest rate.................... 6.5% 6.3%
Dividend yield.............................................. 0% 0%
Weighted average expected life.............................. 2.5 years 4.6 years
Expected volatility......................................... 0% 65%
</TABLE>

Using these assumptions, the fair value of the stock options granted during
the years ended December 31, 1995 and 1996 was approximately $36,000 and
$5,958,000, respectively. The weighted average fair value of options granted
during 1995 and 1996 was $4,800 and $7.04, respectively. Had compensation
expense been determined consistent with SFAS No. 123, utilizing the assumptions
above and the straight-line amortization method over the vesting period, net
income would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
FISCAL YEARS
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net income, as reported..................................... $1,586,538 $4,022,796
========== ==========
Pro forma net income........................................ $1,578,367 $3,711,738
========== ==========
</TABLE>

12. RELATED PARTY TRANSACTIONS:

Concurrent with the acquisition, StaffMark entered into agreements with
certain officers of the company to lease certain parcels of land and buildings
used in the operations of StaffMark for negotiated amounts and terms. Rent
expense related to these facilities totaled approximately $60,000 and $304,000
for the years ended December 31, 1995 and 1996, respectively. Annual future
minimum payments required under these leases are included in the table in Note
14 and are summarized as follows:

<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1997........................................................ $ 548,416
1998........................................................ 535,143
1999........................................................ 407,921
2000........................................................ 351,167
2001........................................................ 345,951
----------
$2,188,598
==========
</TABLE>

Included in Accounts Payable and Other Accrued Liabilities is an unsecured
demand note payable to an employee in the amount of $61,436 which bears interest
at 8%.

In December 1995, a note receivable from Brewer Investments, a partnership
owned by certain stockholders, in the amount of $345,107 was distributed to the
individual stockholders of Brewer.

F-24
<PAGE> 75

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. COMMITMENTS AND CONTINGENCIES:

StaffMark is subject to certain claims and lawsuits arising in the normal
course of business, primarily relating to workers' compensation and other
employee related matters. StaffMark maintains various insurance coverages in
order to minimize the financial risk associated with certain of these claims.
StaffMark has provided for certain of these actions in the accompanying
consolidated financial statements and, in the opinion of management, any
uninsured losses resulting from the ultimate resolution of these matters will
not be material to StaffMark's financial position or results of operations.

StaffMark has employment agreements with certain executive officers and
management personnel that provide for annual salaries, cost-of-living
adjustments and additional compensation in the form of performance based
bonuses. Certain agreements include covenants against competition with
StaffMark, which extends for a period of time after termination. These
agreements generally continue until terminated by the employee or StaffMark.

14. NONCANCELABLE OPERATING LEASES:

StaffMark leases office space under noncancelable operating leases. As
discussed in Note 12, certain of these facilities are leased from related
parties. Annual future minimum payments required under operating leases that
have an initial or remaining noncancelable lease term in excess of one year are
as follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
<S> <C>
1997........................................................ $1,819,176
1998........................................................ 1,601,881
1999........................................................ 1,312,904
2000........................................................ 887,981
2001........................................................ 615,658
----------
$6,237,600
==========
</TABLE>

Rent expense, including amounts paid to related parties, was $275,460 and
$951,369 for the years ended December 31, 1995 and 1996, respectively.

F-25
<PAGE> 76

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):

The supplemental pro forma information included in the accompanying
consolidated statements of income reflects: (i) the acquisition of the Other
Founding Companies at historical cost in accordance with the applicable
provisions of SAB No. 97; (ii) the effects of the acquisition of On Call; (iii)
the estimated impact of recognizing income tax expense as if StaffMark, the
Founding Companies and On Call had been C Corporations for tax reporting
purposes during the entire year ended December 31, 1996; and (iv) the adjustment
to compensation expense to reflect the reductions in salaries to certain owners
of the Founding Companies which were agreed to in conjunction with the
acquisitions discussed in Note 1. Following is a reconciliation of the reported
net income to the pro forma net income shown in the accompanying consolidated
statement of income:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net income, as reported..................................... $ 4,022,796
Pro forma adjustments:
Inclusion of the operating results of the Other Founding
Companies and On Call as if these acquisitions were
effected as of January 1, 1996......................... 3,995,095
Reductions in salaries to certain owners of the Founding
Companies.............................................. 581,332
Recognition of income tax expense as if StaffMark, the
Founding Companies and On Call had been C Corporations
during the entire year ended December 31, 1996......... (2,231,223)
-----------
Pro forma net income, as reported........................... $ 6,368,000
===========
</TABLE>

The computation of pro forma earnings per share for the year ended December
31, 1996, is based on the pro forma shares outstanding for the period prior to
the Offering of approximately 8.3 million and the actual weighted average shares
outstanding for the period from the Offering through December 31, 1996, of
approximately 13.2 million.

16. EVENTS SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):

Business Combinations --

Subsequent to year-end the Company consummated the following significant
business combinations:

<TABLE>
<CAPTION>
CONSIDERATION PAID
DATE OF APPROXIMATE ----------------------- METHOD OF
NAME OF COMPANY ACQUISITION 1996 REVENUES CASH SHARES ACCOUNTING
--------------- ----------- ------------- ------------- ------- ----------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Flexible Personnel Group of
Companies........................ March 1997 $49.3 $ 7.5 183,823 Purchase
Global Dynamics, Inc............... April 1997 17.2 14.0 690,855 Purchase
Lindenberg & Associates, Inc....... April 1997 18.0 15.3 -- Purchase
</TABLE>

In addition to the three acquisitions listed above the Company also
acquired nine other businesses which were not individually material to the
Company's financial statements. Eight of these acquisitions were purchase
business combinations which represented aggregate 1996 unaudited revenues of
approximately $57 million. The aggregate purchase prices for these eight
companies included approximately $23.6 million in cash and 340,623 shares of the
Company's common stock. The Company also completed a pooling-of-interest
business combination with a company which generated 1996 unaudited revenues of
approximately $9.7 million. The Company issued 286,162 shares of common stock in
conjunction with this merger.

F-26
<PAGE> 77

STAFFMARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition to the purchase prices disclosed above, certain of these
acquisition agreements include provisions for the payment of additional
consideration which is contingent upon the achievement of certain performance
measures of the businesses acquired, typically during the twelve months
immediately following the respective acquisitions. For certain of the
acquisitions discussed above the contingent consideration could be significant
relative to the consideration paid; however, the amounts are not currently
determinable. The obligations for this contingent consideration, which will be
payable in a combination of cash and common stock, will be recorded in the
Company's financial statements when they become fixed and determinable.

Credit Facility --

Subsequent to year-end the Company negotiated an increase in the Credit
Facility from $50 million to $100 million, which includes a $30 million
revolving line of credit and a $70 million acquisition facility. As of June 30,
1997 the Company had borrowed approximately $42.6 million under the acquisition
facility which was used to fund the cash consideration related to several of the
acquisitions discussed above. As of June 30, 1997 net borrowings under the
revolving line of credit totaled $800,000 which was used for general corporate
purposes.

Employee Stock Purchase Plan --

In May 1997 the Company's shareholders approved an employee stock purchase
plan (the "Plan") which grants employees the right to purchase common shares of
the Company's stock at a price equal to the lower of 85% of the market value on
the date of purchase or the beginning of the calendar quarter of the purchase.
Purchases under the Plan are limited to 10% of the respective employees'
compensation and will not have an impact on the Company's reported net income.

Registration of Securities --

On July 30, 1997 the Company filed a registration statement with the
Securities and Exchange Commission in connection with a public offering of 3.5
million shares of its common stock. Of the shares to be offered, 285,000 shares
are to be offered on behalf of certain selling shareholders. The Company will
not receive any of the proceeds from the sale of shares by the selling
shareholders.

F-27
<PAGE> 78

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Prostaff Companies:

We have audited the accompanying combined balance sheets of the companies
identified in Note 1 to the financial statements ("The Prostaff Companies"), as
of December 31, 1994 and 1995 and the nine months ended September 29, 1996, and
the related combined statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995 and the nine
months ended September 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Prostaff Companies as of
December 31, 1994 and 1995 and the nine months ended September 29, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 and the nine months ended September 29, 1996
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
October 22, 1996.

F-28
<PAGE> 79

THE PROSTAFF COMPANIES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 29,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 228,372 $ 188,145 $ 69,587
Certificates of deposit................................. 152,028 155,154 --
Accounts receivable, net of allowance for doubtful
accounts of $10,000, $48,500 and $45,096,
respectively......................................... 2,634,108 3,020,622 3,952,688
Deferred tax asset...................................... 154,601 -- --
Prepaid expenses and other.............................. 86,337 135,673 120,604
---------- ---------- ----------
Total current assets............................ 3,255,446 3,499,594 4,142,879
PROPERTY AND EQUIPMENT, net............................... 640,552 756,983 735,737
OTHER ASSETS:
Cash surrender value of officer's life insurance........ 34,670 41,280 --
Advance to StaffMark, Inc............................... -- -- 40,703
Other................................................... 3,675..... 4,730 7,440
---------- ---------- ----------
Total other assets.............................. 38,345 46,010 48,143
---------- ---------- ----------
$3,934,343 $4,302,587 $4,926,759
========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.......................................... $ 417,000 $ 20,000 $1,554,005
Current maturities of long-term debt.................... 61,742.... 64,872 67,598
Note payable to stockholder............................. -- 30,000 30,000
Accounts payable and accrued liabilities................ 83,413 117,339 84,911
Outstanding checks...................................... 109,084 -- 71,212
Payroll and related liabilities......................... 703,263 1,129,777 1,116,619
Reserve for workers' compensation claims................ 439,444 635,290 671,640
Income taxes payable.................................... 54,883 -- --
---------- ---------- ----------
Total current liabilities....................... 1,868,829 1,997,278 3,595,985
LONG-TERM DEBT, less current maturities................... 170,064 111,459 65,874
DEFERRED INCOME TAXES..................................... 57,885 -- --
COMMITMENTS AND CONTINGENCIES
(Notes 6 through 10)
STOCKHOLDERS' EQUITY:
Common stock, (par values of $.20 to $1.00) authorized
shares of 200,000 in 1994 and 201,000 in 1995 and at
September 29, 1996, shares issued and outstanding of
55,000 in 1994, 55,100 in 1995 and at September 29,
1996................................................. 11,000 11,100 11,100
Retained earnings....................................... 1,826,565 2,182,750 1,253,800
---------- ---------- ----------
Total stockholders' equity...................... 1,837,565 2,193,850 1,264,900
---------- ---------- ----------
$3,934,343 $4,302,587 $4,926,759
========== ========== ==========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these balance sheets.

F-29
<PAGE> 80

THE PROSTAFF COMPANIES

COMBINED STATEMENTS OF INCOME

The accompanying notes to combined financial statements
are an integral part of these statements.

F-30
<PAGE> 81

THE PROSTAFF COMPANIES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992....................... 55,000 $11,000 $ 976,186 $ 987,186
Net income..................................... -- -- 398,739 398,739
Dividends...................................... -- -- (25,625) (25,625)
------ ------- ----------- -----------
BALANCE, December 31, 1993....................... 55,000 11,000 1,349,300 1,360,300
Net income..................................... -- -- 521,744 521,744
Dividends...................................... -- -- (44,479) (44,479)
------ ------- ----------- -----------
BALANCE, December 31, 1994....................... 55,000 11,000 1,826,565 1,837,565
Net income..................................... -- -- 446,185 446,185
Initial capitalization of Professional
Resources, Inc.............................. 100 100 -- 100
Dividends...................................... -- -- (90,000) (90,000)
------ ------- ----------- -----------
BALANCE, December 31, 1995....................... 55,100 11,100 2,182,750 2,193,850
Net income..................................... -- -- 1,224,640 1,224,640
Dividends:
Cash........................................ -- -- (2,043,210) (2,043,210)
Property.................................... -- -- (110,380) (110,380)
------ ------- ----------- -----------
BALANCE, September 29, 1996...................... 55,100 $11,100 $ 1,253,800 $ 1,264,900
====== ======= =========== ===========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these statements.

F-31
<PAGE> 82

THE PROSTAFF COMPANIES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 29,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 398,739 $ 521,744 $ 446,185 $ 451,807 $ 1,224,640
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 114,796 174,998 220,433 160,700 186,171
Provision for deferred income taxes... (35,138) (20,021) -- 96,716 --
Write-off of net deferred tax
assets.............................. -- -- 96,716 -- --
Provision for bad debts............... 27,561 10,000 38,500 20,300 45,659
Loss (gain) on sale of property and
equipment........................... -- 20,854 -- -- (14,854)
Change in operating assets and
liabilities, net of effects of
acquisition:
Restricted certificates of
deposit........................... 600,000 -- 152,028 -- --
Accounts receivable................. (637,401) (143,183) (403,041) (1,243,341) (977,725)
Prepaid expenses and other.......... (38,493) (2,052) (49,336) 18,555 15,069
Other............................... 2,357 (8,979) (7,665) (6,647) (1,405)
Accounts payable and accrued
liabilities....................... 21,229 (10,535) 33,926 (22,994) (32,428)
Outstanding checks.................. -- 109,084 (109,084) (109,084) 71,212
Payroll and related liabilities..... 193,651 5,365 426,514 1,188,217 (13,158)
Reserve for workers' compensation
claims............................ 148,385 101,480 195,846 144,306 36,350
Income taxes payable................ (15,039) (19,130) (54,883) (54,883) --
--------- --------- --------- ---------- -----------
Net cash provided by operating
activities...................... 780,647 739,625 986,139 643,652 539,531
--------- --------- --------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advance to StaffMark, Inc............... -- -- -- -- (40,703)
Acquisition of personnel service
business.............................. -- -- (30,000) -- --
Capital expenditures.................... (405,265) (293,936) (328,837) (279,848) (220,476)
Purchase of certificates of deposit..... -- -- (155,154) -- --
Proceeds from the sale of property and
equipment............................. -- 1,400 -- -- --
Proceeds from the sale of certificates
of deposit............................ -- -- -- -- 155,154
--------- --------- --------- ---------- -----------
Net cash used in investing
activities...................... (405,265) (292,536) (513,991) (279,848) (106,025)
--------- --------- --------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under line of
credit................................ (125,000) (158,000) (397,000) (369,995) 1,534,005
Proceeds from note payable to
stockholder........................... -- -- 30,000 -- --
Payments on note payable to
stockholder........................... (530,000) -- -- -- --
Proceeds from issuance of long-term
debt.................................. 290,237 -- -- -- --
Payments on long-term debt.............. -- (58,431) (55,475) (39,828) (42,859)
Proceeds from issuance of common
stock................................. -- -- 100 -- --
Dividends............................... (25,625) (44,479) (90,000) -- (2,043,210)
--------- --------- --------- ---------- -----------
Net cash used in financing
activities (390,388) (260,910) (512,375) (409,823) (552,064)
--------- --------- --------- ---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................. (15,006) 186,179 (40,227) (46,019) (118,558)
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 57,199 42,193 228,372 228,372 188,145
--------- --------- --------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of
period.................................. $ 42,193 $ 228,372 $ 188,145 $ 182,353 $ 69,587
========= ========= ========= ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid........................... $ 84,708 $ 30,549 $ 21,006 $ 16,088 $ 49,443
========= ========= ========= ========== ===========
Income taxes paid....................... $ 242,989 $ 284,847 $ 54,883 $ 54,883 $ --
========= ========= ========= ========== ===========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these statements.

F-32
<PAGE> 83

THE PROSTAFF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization --

The combined financial statements of The Prostaff Companies (the "Company")
include the activities of Prostaff Personnel, Inc. ("Prostaff"), d.b.a. Prostaff
Staffing Services, Office Staffing and Medical Staffing, Excel Temporary
Staffing, Inc. ("Excel") and Professional Resources, Inc. ("Professional"),
d.b.a. Performance Staffing, which have common ownership. All intercompany
transactions have been eliminated in the combined financial statements.

Prostaff was originally incorporated in the state of Arkansas in 1973 as
Dunhill Personnel Agency of Little Rock, Inc. ("Dunhill"). Dunhill changed its
name to Prostaff in 1988. Prostaff's primary business purpose is to provide
temporary personnel services. At September 29, 1996, Prostaff operated staffing
offices in 23 locations in Arkansas. Excel was incorporated in the state of
Arkansas on October 25, 1990 and is engaged in providing temporary personnel
services to one large cosmetics manufacturer in Little Rock, Arkansas which
represents 100% of the revenue and accounts receivable of Excel. Revenues from
this one customer represent 14%, 13%, 14% and 15% of combined service revenues
for 1993, 1994, 1995 and the nine months ended September 29, 1996, respectively.
Professional was incorporated in the state of Arkansas on October 24, 1995
("inception date"). On October 31, 1995, Professional purchased the assets of an
existing temporary personnel service business in Little Rock, Arkansas for
$30,000. This acquisition was accounted for as a purchase. There was no goodwill
recorded in connection with this acquisition. The combined financial statements
of the Company include the results of operations of Professional from the
inception date.

Interim Financial Statements --

The accompanying interim financial statements and related disclosures for
the nine months ended September 30, 1995 have not been audited by independent
accountants. However, they have been prepared in conformity with the accounting
principles stated in the audited financial statements for the three years in the
period ended December 31, 1995 and for the nine months ended September 29, 1996,
and include all adjustments (which were of a normal recurring nature) which, in
the opinion of management, are necessary to present fairly the financial
position of the Company and the results of operations and cash flows for each of
the periods presented. The operating results for the interim periods presented
are not necessarily indicative of results for the full year.

Use of Estimates --

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. Actual results may differ from the estimates and
assumptions used in preparing the accompanying financial statements.

Revenue Recognition --

Service revenues are recognized as income at the time staffing services are
provided.

Cash and Cash Equivalents --

For statement of cash flow purposes, the Company considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.

F-33
<PAGE> 84

THE PROSTAFF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Accounts Receivable --

The Company maintains allowances for potential losses which management
believes are adequate to absorb losses to be incurred in realizing the amounts
recorded in the accompanying financial statements. Included in accounts
receivable in the accompanying balance sheets are unbilled amounts of $343,681,
$441,642 and $838,847 at December 31, 1994, 1995 and September 29, 1996,
respectively.

Property and Equipment --

Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated economic lives or the terms of the lease. The estimated
useful lives of the Company's assets, by asset classification, are as follows:

<TABLE>
<S> <C>
Office equipment............................................ 5 years
Computer equipment.......................................... 5 years
Vehicles.................................................... 5 years
Computer software........................................... 5 years
Leasehold improvements...................................... 10 years
</TABLE>

Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resultant gain or loss is recorded.

Workers' Compensation and Employee Health Benefits --

The Company self-insures certain risks related to workers' compensation and
employee health benefit claims. The estimated costs of existing and future
claims are accrued as incidents occur based upon historical loss development
trends and may be subsequently revised based on developments relating to such
claims. The Company engages the services of a third-party actuary to assist with
the development of the workers' compensation cost estimates.

Fair Value of Financial Instruments --

The Company's financial instruments include cash and cash equivalents,
certificates of deposit, note payable to stockholder and its other debt
obligations. Management believes that these instruments bear interest at rates
which approximate prevailing market rates for instruments with similar
characteristics and, accordingly, that the carrying values for those instruments
are reasonable estimates of fair value.

Income Taxes --

Prior to 1995, the Company operated as a C Corporation for federal and
state tax reporting purposes. Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Under this new statement, deferred income taxes
are provided based on the estimated future tax effects of differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The adoption of SFAS 109 did not have a material effect on the
Company's financial position or results of operations.

Effective January 1, 1995, the Company elected to be taxed as an S
Corporation for federal and state income tax reporting purposes. Accordingly, no
provision for income taxes has been recorded in the accompanying financial
statements for the period subsequent to January 1, 1995 as such taxes are
liabilities of the individual stockholders.

F-34
<PAGE> 85

THE PROSTAFF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Upon election of S Corporation status, the Company wrote off net deferred
tax assets totaling $96,716 related to years prior to 1995, which is reflected
as provision for income taxes in the accompanying combined statements of income.
(See Note 11)

The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change to the Company's
reported income or loss, the taxable income or loss reported by the individual
stockholders could also change.

2. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 29,
1994 1995 1996
-------- ---------- -------------
<S> <C> <C> <C>
Office equipment................................. $311,414 $ 412,661 $ 481,410
Computer equipment............................... 382,903 477,744 523,890
Vehicles......................................... 107,900 136,859 --
Computer software................................ 113,884 165,635 220,046
Leasehold improvements........................... 83,593 136,949 172,464
-------- ---------- ----------
999,694 1,329,848 1,397,810
Less accumulated depreciation and amortization... 359,142 572,865 662,073
-------- ---------- ----------
$640,552 $ 756,983 $ 735,737
======== ========== ==========
</TABLE>

3. DEBT:

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 29,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Term note payable to Boatmen's National Bank in the
original amount of $290,237 due in monthly
installments of $6,079, including interest at 5.5%
through August 31, 1998. Secured by certain
equipment of Prostaff and guaranteed by
stockholders....................................... $231,806 $176,331 $133,472
Less current maturities.............................. 61,742 64,872 67,598
-------- -------- --------
$170,064 $111,459 $ 65,874
======== ======== ========
</TABLE>

Total maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
-----------------------------
DECEMBER 31, SEPTEMBER 29,
------------ -------------
<S> <C> <C>
1996....................................................... $ 64,872 $ --
1997....................................................... 68,531 67,598
1998....................................................... 42,928 65,874
-------- --------
$176,331 $133,472
======== ========
</TABLE>

F-35
<PAGE> 86

THE PROSTAFF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Line of credit balances consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 29,
1994 1995 1996
-------- ------- -------------
<S> <C> <C> <C>
Line of credit with Boatmen's Bank. Maximum borrowings
of $1.5 million. Accrues interest at a variable rate,
which ranged from 8.25% to 9.0% and averaged 8.5%
during the nine months ended September 29, 1996. Due
upon demand. Secured by the accounts receivable of
Prostaff and guaranteed by stockholders.............. $417,000 $ -- $1,500,000
Line of credit with First Commercial Bank. Maximum
borrowings of $50,000. Interest payable monthly at
9.5%. Due upon demand. Secured by the assets of
Professional and guaranteed by stockholder........... -- 20,000 44,000
Line of credit with Mercantile Bank. Maximum borrowings
of $250,000. Interest payable monthly at a fixed rate
of 9.25%, which changed to 10.0% in May 1996 and
averaged 9.67% during the nine months ended September
29, 1996. Secured by accounts receivable of Excel and
guaranteed by stockholders........................... -- -- 10,005
-------- ------- ----------
$417,000 $20,000 $1,554,005
======== ======= ==========
</TABLE>

4. NOTE PAYABLE TO STOCKHOLDER:

In order to effect the acquisition made by Professional, as discussed in
Note 1, Professional borrowed $30,000 from the sole stockholder and signed a
promissory note dated October 30, 1995. Interest is paid monthly at the rate of
9.25%. The note is due on demand, or if no demand is made, on October 30, 1996.
Total interest paid to the stockholder in 1995 and for the nine months ended
September 29, 1996 was $246 and $1,850, respectively.

During 1993, the Company repaid a $530,000 note payable to stockholder.
Total interest paid to the stockholder in 1993 was $44,200.

5. INCOME TAXES:

Provision (benefit) for income taxes consisted of the following components
for the years ended December 31:

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Current:
Federal................................................... $213,892 $243,184
State..................................................... 26,988 30,684
-------- --------
240,880 273,868
-------- --------
Deferred:
Federal................................................... (31,201) (17,778)
State..................................................... (3,937) (2,243)
-------- --------
(35,138) (20,021)
-------- --------
Total............................................. $205,742 $253,847
======== ========
</TABLE>

F-36
<PAGE> 87

THE PROSTAFF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Provision for income taxes differs from amounts computed by applying the
statutory tax rate to pretax income as a result of certain nondeductible
expenses and the utilization of general business credits as follows:

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Income taxes on pretax income at the statutory rate of
34%....................................................... $205,523 $263,701
Increase (reduction) in tax resulting from:
Nondeductible expenses.................................... 16,779 30,242
State income taxes, net of federal income tax benefit..... 28,049 37,089
Federal general business tax credits...................... (44,609) (77,185)
-------- --------
$205,742 $253,847
======== ========
</TABLE>

Deferred income taxes reflect the impact of "temporary differences" between
the financial and tax basis of assets and liabilities as measured by enacted tax
laws. The temporary differences which gave rise to deferred tax assets and
liabilities as of December 31, 1993 and 1994 were as follows:

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 16,465 $ 3,829
Reserve for workers' compensation claims.................. 112,099 150,772
-------- --------
Total deferred tax assets................................... $128,564 $154,601
======== ========
Deferred tax liabilities:
Accelerated depreciation.................................. $ 51,869 $ 57,885
======== ========
</TABLE>

6. WORKERS' COMPENSATION:

Prostaff is self-insured for certain workers' compensation claims and is
regulated by the Arkansas Workers' Compensation Insurance Commission (the
"Commission"). As a condition to authorization of the self-insurance program in
1991, the Commission required Prostaff to maintain a $750,000 deposit in a
depository considered acceptable by the Commission. In 1993, the Commission
altered the depository requirement and allowed Prostaff to provide the
Commission a $750,000 letter of credit. The letter of credit is guaranteed by
stockholders of the Company. As a condition to providing the letter of credit,
the bank required Prostaff to maintain as security a $150,000 deposit with the
bank. These restricted funds were in certificates of deposit with one year
maturities and are reflected with accrued interest as certificates of deposit in
the accompanying combined balance sheet at December 31, 1994. In 1995, the bank
no longer required the security for the letter of credit. Accordingly, Prostaff
reinvested these funds in 1995, and they are reflected as certificates of
deposit at December 31, 1995. Prostaff has purchased insurance for individual
claims which exceed $200,000, up to a maximum of $2.0 million. Workers'
compensation expense totaled $820,569, $728,281, $765,893 and $401,146 for 1993,
1994, 1995 and the nine months ended September 29, 1996, respectively. Unaudited
workers' compensation expense for the nine months ended September 30, 1995 was
$567,242. Excel and Professional are fully insured for workers' compensation.

7. EMPLOYEE BENEFIT PLANS:

The Company adopted a defined contribution benefit plan for its eligible
permanent employees, as defined, effective June 1, 1995. This profit sharing
plan, which operates pursuant to an Internal Revenue Code section 401(k)
arrangement, allows eligible employees to contribute on a tax deferred basis up
to 15% of their annual wages, as defined. The Company makes a matching
contribution equal to 50% of the employees' contributions up to a maximum of 6%
of the respective employees' annual wages. Total matching contribu-

F-37
<PAGE> 88

THE PROSTAFF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

tions made by the Company to the plan for 1995 and the nine months ended
September 29, 1996 were $12,448 and $16,547, respectively.

On September 1, 1995, the Company established a cafeteria plan to offer
health, dental, term life, accidental death and disability insurance to its
permanent full-time employees. Employees may also obtain coverage for family
members by making tax deferred contributions to the plan trust. The health
insurance coverage portion of the plan is self-insured by the Company. Pursuant
to this self-insurance program, the Company pays for the approved claims costs
of eligible participants subject to certain individual and family deductibles
and co-payments, as defined. The Company maintains insurance for annual claims
per employee in excess of $10,000 and aggregate monthly claims in excess of an
amount equal to $75.80 multiplied by the number of personnel enrolled in the
plan. Total claims expense for 1995 and the nine months ended September 29, 1996
was $35,550 and $83,562, respectively.

8. COMMITMENTS:

The Company has a consulting agreement with the former owner of a temporary
personnel service business the Company acquired in March 1995 which provides for
monthly minimum payments of $5,250 for 36 months through March 1998. These
payments are expensed on a monthly basis as paid. The consulting agreement also
includes a covenant not to compete with the Company for a five-year period.

The Company also has a consulting agreement with an individual which
provides for monthly minimum payments of $750, in return for assisting the
Company in developing an affirmative action plan, monitoring unemployment
control and consulting on other human resource issues.

The Company has an employment agreement with one member of management that
provides for a monthly salary of $6,833 through March 1998. The employment
agreement also includes a covenant not to compete with the Company, which
extends through March 2000, or for two years after termination.

9. NONCANCELABLE OPERATING LEASES:

The Company leases office space under noncancelable operating leases.
Annual future minimum payments required under operating leases that have an
initial or remaining noncancelable lease term in excess of one year are as
follows:

<TABLE>
<CAPTION>
YEARS ENDING
-----------------------------
DECEMBER 31, SEPTEMBER 29,
1995 1996
------------ -------------
<S> <C> <C>
1996....................................................... $323,397 $ --
1997....................................................... 264,480 304,634
1998....................................................... 216,665 239,562
1999....................................................... 106,499 156,280
2000....................................................... 63,424 79,677
-------- --------
$974,465 $780,153
======== ========
</TABLE>

Rent expense totaled $147,835, $197,243, $258,992 and $251,165 for fiscal
years 1993, 1994, 1995 and the nine months ended September 29, 1996,
respectively. Unaudited rent expense for the nine months ended September 30,
1995 was $189,315. The Company leases the office facilities of its headquarters
from a limited liability corporation ("LLC") owned by a stockholder of the
Company. For the fiscal years 1993, 1994, 1995 and the nine months ended
September 29, 1996, rent paid to the LLC totaled $61,100, $73,761, $114,180 and
$94,275, respectively. Unaudited rent paid to the LLC was $85,152 for the nine
months ended September 30, 1995.

F-38
<PAGE> 89

THE PROSTAFF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

10. BUSINESS COMBINATION:

In June 1996, the stockholders of the Company entered into a definitive
agreement to merge with StaffMark, Inc. ("StaffMark") in conjunction with
StaffMark's anticipated initial public offering. Effective October 2, 1996,
StaffMark completed the initial public offering. In conjunction with this
merger, certain of the stockholders entered into employment agreements which
provide for a set base salary, participation in future incentive bonus plans,
certain other benefits and a covenant not to compete following termination of
such person's employment. Prior to this merger, the Company declared a dividend
of certain assets to the stockholders consisting of vehicles and the cash
surrender value of an officer's life insurance policy, which had an aggregate
carrying value of $91,749. In addition, the Company made cash distributions
equal to the Company's S Corporation Accumulated Adjustment Account as of the
merger date.

As of September 29, 1996, the Company had advanced $40,703 to StaffMark to
fund organizational and other costs related to the merger and StaffMark's
initial public offering. On October 2, 1996, all of the Company's borrowings and
debt obligations totaling $1,717,477 were repaid using a portion of the proceeds
from the completed initial public offering.

11. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):

In conjunction with the merger with StaffMark as discussed in Note 10, the
Company changed from an S Corporation to C Corporation for federal and state
income tax reporting purposes, which required the Company to recognize the tax
consequences of operations in its statements of income. The supplemental pro
forma information included in the accompanying statements of income reflect the
estimated impact of recognizing income tax expense as if the Company had been a
C Corporation for tax reporting purposes during the twelve months and nine
months ended December 31, 1995 and September 29, 1996, respectively.

F-39
<PAGE> 90

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Maxwell Companies:

We have audited the accompanying combined balance sheets of the companies
identified in Note 1 to the financial statements ("The Maxwell Companies"), as
of December 31, 1994 and 1995 and September 30, 1996, and the related combined
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995 and for the nine months ended
September 30, 1996. These financial statements are the responsibility of The
Maxwell Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Maxwell Companies as of
December 31, 1994 and 1995 and September 30, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 and for the nine months ended September 30, 1996 in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Little Rock, Arkansas,
October 22, 1996.

F-40
<PAGE> 91

THE MAXWELL COMPANIES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 556,544 $1,041,373 $ 162,562
Restricted cash...................................... 138,453 253,171 50,279
Investments.......................................... 209,505 273,354 --
Accounts receivable, net of allowance for doubtful
accounts of $75,711, $63,988 and $122,120,
respectively...................................... 2,810,176 2,536,603 2,898,083
Prepaid expenses and other........................... 96,669 24,628 153,609
---------- ---------- ----------
Total current assets......................... 3,811,347 4,129,129 3,264,533
PROPERTY AND EQUIPMENT, net............................ 480,594 499,792 337,774
INTANGIBLE ASSETS, net................................. -- -- 294,632
ADVANCE TO STAFFMARK, INC. ............................ -- -- 31,250
---------- ---------- ----------
$4,291,941 $4,628,921 $3,928,189
========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 167,991 $ 169,250 $ 333,471
Payroll and related liabilities...................... 653,772 570,444 851,469
Reserve for workers' compensation claims............. 476,000 1,153,000 912,000
Current maturities of long-term debt................. -- -- 1,821,618
Accrued dividends.................................... 197,500 151,000 --
Other accrued liabilities............................ 20,728 25,462 18,993
---------- ---------- ----------
Total current liabilities.................... 1,515,991 2,069,156 3,937,551
LONG-TERM DEBT, less current maturities................ -- -- 77,562
COMMITMENTS AND CONTINGENCIES
(Notes 8 through 12)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value in 1994, 1995 and 1996;
authorized shares of 110,000 in 1994 and 1995 and
160,000 in 1996; shares issued and outstanding of
4,000 in 1994 and 1995 and 5,000 in 1996.......... 4,000 4,000 5,000
Unrealized gain on investments....................... -- 43,296 --
Retained earnings.................................... 2,771,950 2,512,469 (91,924)
---------- ---------- ----------
Total stockholders' equity................... 2,775,950 2,559,765 (86,924)
---------- ---------- ----------
$4,291,941 $4,628,921 $3,928,189
========== ========== ==========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these balance sheets.

F-41
<PAGE> 92

THE MAXWELL COMPANIES

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES.......................... $16,324,216 $21,225,866 $23,092,606 $17,154,803 $20,428,988
COST OF SERVICES.......................... 11,253,565 16,003,387 17,748,020 13,009,183 15,385,451
----------- ----------- ----------- ----------- -----------
Gross profit............................ 5,070,651 5,222,479 5,344,586 4,145,620 5,043,537
OPERATING EXPENSES:
Selling, general and administrative..... 3,582,427 3,820,565 4,296,703 3,233,692 3,815,406
Depreciation and amortization........... 75,368 107,601 136,135 107,187 98,997
----------- ----------- ----------- ----------- -----------
Operating income..................... 1,412,856 1,294,313 911,748 804,741 1,129,134
OTHER INCOME (EXPENSE):
Interest income......................... 14,767 21,645 43,213 35,969 49,493
Interest expense........................ (27,678) (33,849) -- -- (62,540)
Other, net.............................. (104,397) (18,836) (35,396) (35,009) 18,616
----------- ----------- ----------- ----------- -----------
Net income...................... $ 1,295,548 $ 1,263,273 $ 919,565 $ 805,701 $ 1,134,703
=========== =========== =========== =========== ===========

PRO FORMA DATA (Unaudited) (Note 15):
Historical income before income taxes... $ 919,565 $ 1,134,703
Less: Pro forma provision for income
taxes................................ 358,630 442,534
----------- -----------
PRO FORMA NET INCOME...................... $ 560,935 $ 692,169
=========== ===========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these statements.

F-42
<PAGE> 93

THE MAXWELL COMPANIES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
--------------- GAIN ON RETAINED
SHARES AMOUNT INVESTMENTS EARNINGS TOTAL
------ ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992.............. 3,500 $3,500 $ -- $ 1,890,892 $ 1,894,392
Net income............................ -- -- -- 1,295,548 1,295,548
Dividends declared.................... -- -- -- (979,383) (979,383)
----- ------ -------- ----------- -----------
BALANCE, December 31, 1993.............. 3,500 3,500 -- 2,207,057 2,210,557
Net income............................ -- -- -- 1,263,273 1,263,273
Issuance of stock..................... 500 500 -- -- 500
Dividends declared.................... -- -- -- (698,380) (698,380)
----- ------ -------- ----------- -----------
BALANCE, December 31, 1994.............. 4,000 4,000 -- 2,771,950 2,775,950
Net income............................ -- -- -- 919,565 919,565
Dividends declared.................... -- -- -- (1,179,046) (1,179,046)
Net unrealized holding gain on
investments available for sale..... -- -- 43,296 -- 43,296
----- ------ -------- ----------- -----------
BALANCE, December 31, 1995.............. 4,000 4,000 43,296 2,512,469 2,559,765
Net income............................ -- -- -- 1,134,703 1,134,703
Issuance of stock..................... 1,000 1,000 -- -- 1,000
Dividends declared:
Cash............................... -- -- -- (3,288,223) (3,288,223)
Investments........................ -- -- (43,296) (230,058) (273,354)
Property........................... -- -- -- (220,815) (220,815)
----- ------ -------- ----------- -----------
BALANCE, September 30, 1996............. 5,000 $5,000 $ -- $ (91,924) $ (86,924)
===== ====== ======== =========== ===========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these statements.

F-43
<PAGE> 94

THE MAXWELL COMPANIES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $1,295,548 $ 1,263,273 $ 919,565 $ 805,701 $ 1,134,703
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 75,368 107,601 136,135 107,187 98,997
Provision for bad debts............. 77,690 100,615 223,216 223,216 50,056
Loss (gain) on investments.......... 102,536 12,500 (2,146) -- --
Change in operating assets and
liabilities, net of effects of
acquisition:
Restricted cash................... (65,954) (72,499) (114,718) (34,096) 202,892
Accounts receivable............... (777,846) (1,073,300) 50,357 (77,936) (411,536)
Prepaid expenses and other........ 26,124 (10,457) 72,041 60,524 (128,981)
Accounts payable.................. 40,808 (74,812) 1,259 (23,898) 158,478
Payroll and related liabilities... 525,769 33,483 (83,328) 49,385 281,025
Reserve for workers' compensation
claims......................... -- 476,000 677,000 520,250 (241,000)
Other accrued liabilities......... 64,574 (43,846) 4,734 27,090 (726)
---------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities................... 1,364,617 718,558 1,884,115 1,657,423 1,143,908
---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Sumner-Ray Technical
Resources, Inc...................... -- -- -- -- (168,000)
Capital expenditures.................. (155,150) (211,595) (155,333) (150,435) (135,246)
Purchases of investments.............. (109,144) (13,750) (116,526) (116,526) --
Sales of investments.................. -- -- 98,119 -- --
Advance to StaffMark, Inc............. -- -- -- -- (31,250)
---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities................... (264,294) (225,345) (173,740) (266,961) (334,496)
---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends........................ (813,409) (666,854) (1,225,546) (1,176,956) (3,439,223)
Proceeds from (payments on)
long-term debt...................... (46,297) (336,801) -- -- 1,750,000
Issuance of stock..................... -- 500 -- -- 1,000
---------- ----------- ----------- ----------- -----------
Net cash used in financing
activities................... (859,706) (1,003,155) (1,225,546) (1,176,956) (1,688,223)
---------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 240,617 (509,942) 484,829 213,506 (878,811)
CASH AND CASH EQUIVALENTS,
beginning of period................... 825,869 1,066,486 556,544 556,544 1,041,373
---------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period......................... $1,066,486 $ 556,544 $ 1,041,373 $ 770,050 $ 162,562
========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid......................... $ 27,678 $ 23,950 $ -- $ -- $ 48,085
========== =========== =========== =========== ===========
Non-cash transactions:
Notes payable issued in conjunction
with the purchase of Sumner-Ray
Technical Resources, Inc............ $ -- $ -- $ -- $ -- $ 149,180
========== =========== =========== =========== ===========
Distribution of investments to
stockholders........................ $ -- $ -- $ -- $ -- $ 273,354
========== =========== =========== =========== ===========
Distribution of property to
stockholders........................ $ -- $ -- $ -- $ -- $ 220,815
========== =========== =========== =========== ===========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these statements.

F-44
<PAGE> 95

THE MAXWELL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization --

The combined financial statements of The Maxwell Companies (the "Company")
include the activities of Maxwell Staffing, Inc. ("Staffing"), Maxwell Staffing
of Bristow, Inc. ("Bristow"), Maxwell/Healthcare, Inc. ("Healthcare"), Square
One Rehab, Inc. ("Square One") and Technical Staffing, Inc. ("Technical"), all
of which are incorporated in Oklahoma and have substantially common ownership.
All significant intercompany transactions have been eliminated in the
accompanying combined financial statements.

Staffing, which was incorporated in 1979, and Bristow, which was
incorporated in 1993, both provide temporary personnel services in the
northeastern Oklahoma area to the clerical, industrial and medical fields.
Healthcare, which was incorporated in 1989 to provide foreign-trained temporary
and permanent physical and occupational therapist services, is licensed to do
business in 22 states. Square One, which was incorporated in 1991, provides
contract management and physical and occupational therapist services to
companies located in the midwestern and southwestern United States. Technical,
which was incorporated in 1996, provides permanent and temporary technical
personnel services to companies located primarily in Oklahoma.

Interim Financial Statements --

The accompanying interim combined financial statements and related
disclosures for the nine months ended September 30, 1995 have not been audited
by independent accountants. However, they have been prepared in conformity with
the accounting principles stated in the audited combined financial statements
for the three years in the period ended December 31, 1995 and for the nine
months ended September 30, 1996, and include all adjustments (which were of a
normal, recurring nature) which, in the opinion of management, are necessary to
present fairly the financial position of the Company and the results of its
operations and cash flows for each of the periods presented. The operating
results for the interim periods presented are not necessarily indicative of
results for the full year.

Use of Estimates --

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in preparing the accompanying combined financial statements
are based upon management's evaluation of the relevant facts and circumstances
as of the date of the financial statements. However, actual results may differ
from the estimates and assumptions used in preparing the accompanying combined
financial statements.

Revenue Recognition --

Service revenues are recognized as income at the time services are
provided.

Cash and Cash Equivalents --

Restricted Cash --

Restricted cash represents funds deposited in an account maintained on
behalf of the Company's self-insured health benefits plan. The use of these
assets is restricted to the payment of health benefits of the participating
employees.

F-45
<PAGE> 96

THE MAXWELL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Accounts Receivable --

The Company maintains allowances for potential losses which management
believes are adequate to absorb losses to be incurred in realizing the amounts
recorded in the accompanying financial statements. Included in accounts
receivable in the accompanying combined balance sheets are unbilled amounts of
$392,068, $379,163 and $166,429 at December 31, 1994, December 31, 1995 and
September 30, 1996, respectively.

Investment Securities --

Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with this pronouncement, investment
securities are to be classified as either trading, available-for-sale or held
for investment. Trading securities are recorded at market value, and any gains
or losses are recognized in the income statement. Securities available-for-sale
are also recorded at market value; however, any unrealized gains or losses are
recorded as an adjustment to stockholders' equity. Securities held for
investment are recorded at amortized cost, adjusted for necessary valuation
allowances.

Upon adoption of SFAS No. 115 on January 1, 1994, the Company classified
its investment securities as available-for-sale. The implementation of this
pronouncement did not have a material impact on the accompanying financial
statements.

Property and Equipment --

Property and equipment are recorded at cost and are depreciated or
amortized using a method which approximates the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the estimated economic lives or the
terms of the lease. The estimated useful lives of the Company's assets, by asset
classification, are as follows:

<TABLE>
<S> <C>
Office equipment............................................ 5-7 years
Computer equipment.......................................... 5-7 years
Vehicles.................................................... 5 years
Building and improvements................................... 7-32 years
</TABLE>

Intangible Assets --

Intangible assets consist primarily of goodwill recorded in conjunction
with the acquisition of Sumner-Ray Technical Resources, Inc. ("Sumner-Ray"), as
discussed in Note 2, which is being amortized using the straight-line method
over 30 years. In the event facts and circumstances indicate that the carrying
amount of this goodwill may be impaired, an evaluation of recoverability would
be performed. If an evaluation is required, the estimated future undiscounted
net cash flows of the related assets over their remaining lives would be
compared to the assets' carrying amounts in measuring whether the assets are
recoverable. As of September 30, 1996, the Company's intangible assets were
considered to be fully recoverable.

F-46
<PAGE> 97

THE MAXWELL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Workers' Compensation and Health Benefits --

The Company self-insures certain risks related to workers' compensation and
employee health benefits claims. The estimated costs of existing and future
claims are accrued as incidents occur based upon historical loss development
trends and may be subsequently revised based on developments relating to such
claims.

Fair Value of Financial Instruments --

The Company's financial instruments include cash and cash equivalents,
restricted cash, investments and long-term debt. Excluding investments, which
are carried at fair market value as discussed in Note 4, management believes
that the Company's financial instruments bear interest at rates which
approximate prevailing market rates for instruments with similar characteristics
and, accordingly, that the carrying values for these instruments are reasonable
estimates of fair value.

2. BUSINESS COMBINATIONS:

On February 23, 1996, the Company acquired certain assets of Sumner-Ray,
which is engaged in providing temporary and direct placement of professional and
technical personnel in the engineering, drafting and manufacturing fields. The
acquisition has been accounted for as a purchase and the results of Sumner-Ray
have been included in the accompanying financial statements since the date of
acquisition. The cost of the acquisition has been allocated on the basis of the
estimated fair value of the assets and liabilities acquired.

Total consideration paid for Sumner-Ray was $336,000. The purchase price
included cash of $168,000 and a note to the seller for $168,000, which included
an interest component at a stated rate of 8% per year. The note has been
discounted using the prescribed rate, and the resulting principal amount of
$149,180 is included in the accompanying combined balance sheets. The assets
acquired have been recorded at their estimated fair value as of the acquisition
date, with the remaining acquisition costs of approximately $300,000 being
recorded as goodwill.

The acquisition of Sumner-Ray did not have a significant impact on the
Company's operating results.

3. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Building and improvements..................... $ 483,136 $ 502,130 $ --
Office equipment.............................. 346,530 386,411 439,829
Computer equipment............................ 204,268 300,265 361,710
Vehicles...................................... 25,105 27,561 27,561
Leasehold improvements........................ -- -- 31,089
Land.......................................... 13,000 13,000 --
---------- ---------- --------
1,072,039 1,229,367 860,189
Less accumulated depreciation and
amortization................................ 591,445 729,575 522,415
---------- ---------- --------
$ 480,594 $ 499,792 $337,774
========== ========== ========
</TABLE>

Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1993, 1994 and 1995 totaled $75,368, $107,601 and
$136,135, respectively. Depreciation and amortization expense for the nine
months ended September 30, 1995 and 1996 totaled $107,187 (unaudited) and
$91,449, respectively.

F-47
<PAGE> 98

THE MAXWELL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. INVESTMENTS:

The Company has classified all investments as available-for-sale.
Accordingly, these investments have been recorded at market value.

The carrying value and market value of available-for-sale investment
securities were as follows:

<TABLE>
<CAPTION>
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
December 31, 1994:
Equity securities..................... $180,826 $ -- $ -- $180,826
United States government
obligations........................ 28,679 -- -- 28,679
-------- ------- -------- --------
$209,505 $ -- $ -- $209,505
======== ======= ======== ========
December 31, 1995:
Equity securities..................... $201,379 $38,551 $ -- $239,930
United States government
obligations........................ 28,679 4,745 -- 33,424
-------- ------- -------- --------
$230,058 $43,296 $ -- $273,354
======== ======= ======== ========
</TABLE>

The United States government obligations held as of December 31, 1994 and
1995 represent only one issue which matures in 2003.

Losses totaling $102,536 and $12,500 in 1993 and 1994, respectively, were
recognized related to one security whose impairment of value was deemed to be
other than temporary. There were no sales of securities during 1994. Proceeds
from the sale of available-for-sale securities totaled $98,119 for the year
ended December 1995, including realization of a gross gain of $2,146. The gain
and losses are reflected in other income (expense) in the accompanying combined
statements of income and were determined using each security's specifically
identified cost.

All investments were distributed to the stockholders in March 1996. The
related unrealized holding gain was removed in connection with this dividend.

5. INTANGIBLE ASSETS:

Intangible assets, net of amortization, at September 30, 1996 consisted
primarily of the goodwill related to the acquisition of Sumner-Ray, as discussed
in Note 2.

Amortization expense related to intangible assets totaled $7,548 for the
nine months ended September 30, 1996.

6. LONG-TERM DEBT:

Long-term debt as of September 30, 1996 consisted of a promissory note
payable to the previous owner of Sumner-Ray which is due in annual installments
of $84,000, including interest at approximately 8%, payable on February 23, 1997
and 1998. The obligation is secured by a lien and security interest in certain
assets of the Company. Scheduled principal maturities of this obligation are
$71,618 in 1997 and $77,562 in 1998.

On May 17, 1996, the Company entered into a debt agreement with State Bank
& Trust, N.A. which provided for a $1.75 million term loan. The loan is secured
by the Company's accounts receivable and guaranteed by the Company's
stockholders. Accrued interest is due and payable monthly beginning June 1, 1996
at a rate of 8.25%. The outstanding principal balance plus unpaid accrued
interest is due November 1, 1996. The proceeds from this loan were used to
partially fund the cash dividend discussed in Note 14.

F-48
<PAGE> 99

THE MAXWELL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES:

The Company operates as an S Corporation for federal and state income tax
reporting purposes. Accordingly, no provision for income taxes has been recorded
in the accompanying financial statements as such taxes are liabilities of the
individual stockholders. See Note 15.

8. WORKERS' COMPENSATION:

Effective July 1, 1994, the Company began self-insuring certain workers'
compensation claims in the state of Oklahoma and is regulated by the Oklahoma
Workers' Compensation Insurance Commission. The Company has purchased insurance
for workers' compensation claims which exceed $250,000. The Company maintains a
letter of credit with a bank to cover any potential unpaid claims. At September
30, 1996, this letter of credit was in the amount of $575,000. Workers'
compensation expense totaled $485,151, $918,961 and $1,089,901 for the years
ended December 31, 1993, 1994 and 1995, respectively. For the nine months ended
September 30, 1995 and 1996, workers' compensation expense was $713,749
(unaudited) and $29,722, respectively. The decrease in workers' compensation
expense for the nine months ended September 30, 1996 is due to a reduction in
the actuarially determined reserves required which was primarily the result of
using the Company's own claim development experience versus industry development
factors which had been used in previous actuarial valuations.

9. EMPLOYEE BENEFIT PLANS:

Prior to 1995, employees participated in a profit sharing plan to which the
Company made discretionary contributions. In 1993 and 1994, the Company made
contributions totaling $250,000 and $190,000, respectively. The Company elected
not to make a contribution in 1995. Effective January 1, 1996, the Company added
a defined contribution benefit plan to the existing profit sharing plan. This
new plan, which operates pursuant to an Internal Revenue Code Section 401(k)
arrangement, allows employees to contribute on a tax deferred basis up to 10% of
their annual wages. The Company makes a matching contribution equal to 50% of
the employees' contributions up to a maximum of 3% of the respective employees'
annual wages. The Company may also contribute additional amounts for profit
sharing at its discretion. Total matching contributions to be made by the
Company to the plan for the nine months ended September 30, 1996 were $30,578.

On January 1, 1993, the Company established a self-insured plan to offer
health and dental insurance benefits to certain of its employees. Employees may
also purchase coverage for family members. Pursuant to this plan, the Company
pays for the approved claims costs of eligible participants subject to certain
individual and family deductibles and co-payments, as defined. Both the Company
and the participants make contributions to the plan based upon premiums which
are established by a third party administrator and the Company's benefits
committee. The Company maintained insurance for annual claims for individuals
which exceeded $10,000, $15,000, $25,000 and $25,000 at December 31, 1993, 1994
and 1995 and September 30, 1996, respectively. Expenses related to this plan for
the years ended December 31, 1993, 1994 and 1995 were $190,537, $184,605 and
$188,066, respectively. Expenses related to this plan for the nine months ended
September 30, 1995 and 1996 were $191,298 (unaudited) and $180,205,
respectively.

10. RELATED PARTY TRANSACTIONS:

The Company rents a duplex from certain stockholders which houses
foreign-trained physical and occupational therapists. Rent expense related to
the duplex amounted to $16,800 for each of the years ended

F-49
<PAGE> 100

THE MAXWELL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1993, 1994 and 1995. Rent expense totaled $12,600 (unaudited) and
$13,000 for the nine months ended September 30, 1995 and 1996, respectively.
These rent payments are not subject to a formal agreement and, therefore, have
not been considered in the disclosure included in Note 12. Effective May 31,
1996, the Company entered into an agreement with certain stockholders to lease
the building in which the Company is headquartered for $100,000 a year. Rent
expense totaled $33,332 for the nine months ended September 30, 1996.

11. COMMITMENTS AND CONTINGENCIES:

The Company has employment agreements with certain executive officers and
management personnel that provide for annual salaries, cost-of-living
adjustments and additional compensation in the form of performance based
bonuses. Certain agreements include a covenant against competition with the
Company, which extends for a period of time after termination. These agreements
generally continue until terminated by the employee or the Company.

One employment agreement provides for the purchase of up to 398 shares of
Square One stock from the existing stockholders subject to the satisfaction of
certain performance measures of Square One. As of September 30, 1996, Square
One's performance had exceeded the threshold required for the employee to
purchase 100 shares; however, this option had not been exercised.

The Company pays dividends to its stockholders in amounts sufficient to
cover their estimated tax payments attributable to the respective share of the
Company's net income which will be included in their individual tax returns. The
Company plans to continue this practice in the future as long as it maintains
its S Corporation status. See Note 15.

The Company is a party to certain lawsuits and claims primarily involving
workers' compensation claims and other employee related matters. Management
believes, based in part on consultation from legal counsel, that the ultimate
outcome of these matters will not have a materially adverse effect on the
Company's financial position, liquidity or results of operations.

12. NONCANCELABLE OPERATING LEASES:

The Company leases equipment, vehicles and office space as well as
apartments for certain foreign-trained therapists under noncancelable operating
leases. Annual future minimum payments during each of the next five years
required under such leases are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
-----------------------------
DECEMBER 31, SEPTEMBER 30,
------------ -------------
<S> <C> <C>
1996....................................................... $224,093 $181,766
1997....................................................... 67,545 154,257
1998....................................................... 52,132 110,311
1999....................................................... 43,643 43,643
2000....................................................... 43,643 18,971
-------- --------
$431,056 $508,948
======== ========
</TABLE>

Rent expense totaled $75,472, $123,099 and $134,231 for the years ended
December 31, 1993, 1994 and 1995, respectively. Rent expense for the nine months
ended September 30, 1995 and 1996 was $69,303 (unaudited) and $111,847,
respectively.

F-50
<PAGE> 101

THE MAXWELL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

13. SIGNIFICANT CUSTOMERS:

The Company's sales to customers which individually account for 10% or more
of service revenues were as follows:

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer 1.................................. 21% 14% 10% -- --
Customer 2.................................. -- 14% 12% 13% 11%
</TABLE>

14. BUSINESS COMBINATION:

In June 1996, the owners of the Company entered into a definitive agreement
to merge with StaffMark, Inc. ("StaffMark") in conjunction with StaffMark's
initial public offering. Effective October 2, 1996, StaffMark completed the
initial public offering. In conjunction with the merger, the Company transferred
certain assets to the stockholders consisting of the building in which the
Company is headquartered, which had an aggregate carrying value of $220,815 as
of April 1996. StaffMark plans to lease the real property distributed, as
discussed above, from the owners at $100,000 per year by assuming the lease
agreement discussed in Note 10. In addition, the Company made cash distributions
equal to the Company's S Corporation Accumulated Adjustment Account as of the
merger date. During 1996, the Company distributed cash of approximately $3.3
million, which represented the Company's estimated S Corporation Accumulated
Adjustment Account at September 30, 1996.

In conjunction with this merger, the owners entered into employment
agreements which provide for a set base salary, participation in future
incentive bonus plans, certain other benefits and a covenant not to compete
following termination of such person's employment.

As of September 30, 1996, the Company had advanced $31,250 to StaffMark to
fund organizational and other costs related to the merger and StaffMark's
initial public offering.

On October 2, 1996, all of the Company's borrowings and debt obligations
totaling $1,899,180 were repaid using a portion of the proceeds from the
completed initial public offering.

15. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):

In conjunction with the planned merger with StaffMark as discussed in Note
14, the Company will change from an S Corporation to C Corporation for federal
and state income tax reporting purposes, which will require the Company to
recognize the tax consequences of operations in its statements of income. The
supplemental pro forma information included in the accompanying statements of
income reflect the estimated impact of recognizing income tax expense as if the
Company had been a C Corporation for tax reporting purposes during the twelve
months and nine months ended December 31, 1995 and September 30, 1996,
respectively.

F-51
<PAGE> 102

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To HRA, Inc.:

We have audited the accompanying balance sheets of HRA, Inc. (the
"Company"), a Tennessee corporation, as of September 30, 1995 and 1996, and the
related statements of income (loss), stockholders' equity and cash flows for
each of the three years ended September 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HRA, Inc. as of September
30, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years ended September 30, 1996, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Memphis, Tennessee,
October 22, 1996.

F-52
<PAGE> 103

HRA, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 367,978 $ 354,417
Restricted cash........................................... 50,251 --
Accounts receivable, net of allowance for doubtful
accounts of
$26,000 and $40,000.................................... 1,998,724 2,944,791
Advances to StaffMark, Inc................................ -- 31,250
Prepaid expenses and other................................ 467,002 756,836
Income taxes receivable................................... 25,125 --
Deferred income taxes..................................... 160,000 281,300
---------- ----------
Total current assets.............................. 3,069,080 4,368,594
PROPERTY AND EQUIPMENT, net................................. 144,179 258,087
INTANGIBLE ASSETS, net...................................... 37,156 1,001,308
OTHER ASSETS:
Deferred income taxes..................................... 65,000 55,300
Other..................................................... 21,071 1,423
---------- ----------
Total other assets................................ 86,071 56,723
---------- ----------
$3,336,486 $5,684,712
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under accounts receivable financing
agreement.............................................. $ 502,512 $ --
Line of credit............................................ -- 1,340,000
Current portion of note payable to Liberty Mutual......... -- 255,238
Current portion of deferred compensation arrangements..... 43,699 108,939
Outstanding checks........................................ 166,761 184,558
Accounts payable.......................................... 193,096 164,199
Payroll and related liabilities........................... 621,317 766,417
Reserve for workers' compensation claims.................. 1,390,351 1,224,378
Income taxes payable...................................... -- 443,896
Accrued expenses.......................................... 138,416 169,594
---------- ----------
Total current liabilities......................... 3,056,152 4,657,219
DEFERRED COMPENSATION ARRANGEMENTS, less current portion.... 127,332 247,383
NOTE PAYABLE TO A STOCKHOLDER............................... 122,000 116,000
NOTE PAYABLE TO LIBERTY MUTUAL, less current portion........ -- 386,156
COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 15)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000 shares authorized, 790
shares issued and outstanding.......................... 12,600 12,600
Retained earnings......................................... 18,402 265,354
---------- ----------
Total stockholders' equity........................ 31,002 277,954
---------- ----------
$3,336,486 $5,684,712
========== ==========
</TABLE>

The accompanying notes are an integral
part of these balance sheets.

F-53
<PAGE> 104

HRA, INC.

STATEMENTS OF INCOME (LOSS)

<TABLE>
<CAPTION>
FISCAL YEARS
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
SERVICE REVENUES.................................... $16,453,375 $18,306,542 $24,629,470
COST OF SERVICES.................................... 13,367,561 14,939,279 19,525,952
----------- ----------- -----------
Gross profit...................................... 3,085,814 3,367,263 5,103,518
OPERATING EXPENSES:
Selling, general and administrative............... 2,381,168 3,438,436 4,224,370
Depreciation and amortization..................... 45,783 65,691 107,697
----------- ----------- -----------
Operating income (loss)........................... 658,863 (136,864) 771,451
OTHER INCOME (EXPENSE):
Interest expense.................................. (100,828) (107,364) (120,126)
Interest and other, net........................... 16,466 13,443 245,922
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME
TAXES............................................. 574,501 (230,785) 897,247
PROVISION (BENEFIT) FOR INCOME TAXES................ 221,100 (84,160) 353,006
----------- ----------- -----------
Net income (loss)......................... $ 353,401 $ (146,625) $ 544,241
=========== =========== ===========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-54
<PAGE> 105

HRA, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK RETAINED
----------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ ------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1993........................ 500 $ 1,000 $(188,374) $(187,374)
Issuance of Common Stock......................... 290 11,600 -- 11,600
Net income....................................... -- -- 353,401 353,401
--- ------- --------- ---------
BALANCE, September 30, 1994........................ 790 12,600 165,027 177,627
Net loss......................................... -- -- (146,625) (146,625)
--- ------- --------- ---------
BALANCE, September 30, 1995........................ 790 12,600 18,402 31,002
Dividends........................................ -- -- (297,289) (297,289)
Net income....................................... -- -- 544,241 544,241
--- ------- --------- ---------
BALANCE, September 30, 1996........................ 790 $12,600 $ 265,354 $ 277,954
=== ======= ========= =========
</TABLE>

The accompanying notes are an integral
part of these financial statements.

F-55
<PAGE> 106

HRA, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 353,401 $(146,625) $ 544,241
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 45,783 65,691 107,697
Provision (recovery) for bad debts, net................. 4,498 2,041 (5,578)
Change in deferred income taxes......................... (10,200) (112,200) (111,600)
Change in operating assets and liabilities:
Accounts receivable..................................... (421,143) (316,713) (940,489)
Prepaid expenses and other.............................. 2,531 (454,386) (289,834)
Income taxes receivable................................. -- (25,125) 25,125
Other assets............................................ 17 (20,671) 19,648
Outstanding checks...................................... -- 166,761 17,797
Accounts payable........................................ 51,940 49,190 (34,153)
Payroll and related liabilities......................... (30,697) 128,284 145,100
Reserve for workers' compensation claims................ (68,655) 914,639 500,421
Income taxes payable.................................... 192,487 (228,217) 443,896
Accrued expenses........................................ (21,755) 66,332 6,178
--------- --------- -----------
Net cash provided by operating activities........... 98,207 89,001 428,449
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (40,096) (135,765) (177,713)
Advances to StaffMark, Inc................................ -- -- (31,250)
Other..................................................... -- (16,000) --
Payment for purchase acquisition.......................... -- -- (863,151)
--------- --------- -----------
Net cash used in investing activities............... (40,096) (151,765) (1,072,114)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (increase) decrease in restricted cash................ (60,083) 9,832 50,251
Increase in deferred compensation arrangements............ 21,559 -- 135,596
Payments on deferred compensation arrangements............ -- (24,691) (89,942)
Net borrowings (payments) under an accounts receivable
financing agreement..................................... 100,830 (98,318) (502,512)
Net borrowings under a revolving line of credit........... -- -- 1,340,000
Principal payments on note payable to a stockholder....... -- (33,295) (6,000)
Dividends................................................. -- -- (297,289)
Proceeds from issuance of common stock.................... 11,600 -- --
Other..................................................... (5,749) -- --
--------- --------- -----------
Net cash provided by (used in) financing
activities........................................ 68,157 (146,472) 630,104
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 126,268 (209,236) (13,561)
CASH AND CASH EQUIVALENTS, beginning of period.............. 450,946 577,214 367,978
--------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 577,214 $ 367,978 $ 354,417
========= ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................. $ 77,737 $ 106,467 $ 116,161
========= ========= ===========
Taxes paid................................................ $ 41,813 $ 267,622 $ 18,000
========= ========= ===========

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
</TABLE>

During fiscal year 1995, the Company incurred a liability totaling $41,000
for the purchase of a consulting and noncompete agreement.

During fiscal year 1996, the Company recorded a deferred compensation
arrangement liability for the purchase of a noncompete agreement with a former
stockholder totaling $139,637.

During fiscal year 1996, the Company settled a dispute with its former
workers' compensation insurance carrier for $641,394. The anticipated settlement
amount had been recorded in previous periods in the Reserve for Workers'
Compensation and was reclassified in fiscal year 1996 to Note Payable to Liberty
Mutual (Note 7).

The accompanying notes are an integral
part of these financial statements.

F-56
<PAGE> 107

HRA, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization --

HRA, Inc. (the "Company") was incorporated on November 20, 1991, in the
state of Tennessee and provides temporary personnel services throughout central
Tennessee and direct placement services primarily in the Nashville, Tennessee
area. Headquartered in Nashville, Tennessee, the Company does business under the
name of Human Resources and operates staffing offices in the following Tennessee
locations: Clarksville, Columbia, Franklin, Gallatin, Lebanon, Lewisburg,
Murfreesboro, Nashville, Pulaski, Portland, Smyrna, Springfield and Tullahoma.

The majority of the Company's sales are derived from customers within a
100-mile radius of Nashville, Tennessee. The Company extends trade credit to its
customers which are represented by various industries. There are no individual
customers that account for more than 10% of service revenues in any of the
fiscal years presented.

Fiscal Periods --

The Company's fiscal year ends on September 30. The fiscal years 1994, 1995
and 1996 each included 52 weeks.

Use of Estimates --

Revenue Recognition --

Service revenues are recognized as income at the time staffing services are
provided.

Cash and Cash Equivalents --

At September 30, 1994 and 1995, the Company had set aside cash reserves of
$60,083 and $50,251 as collateral on accounts receivable financed with recourse
(Note 5).

Accounts Receivable --

The Company maintains allowances for potential losses which management
believes are adequate to absorb losses related to the realization of the amounts
recorded in the accompanying balance sheets.

F-57
<PAGE> 108

HRA, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Property and Equipment --

Property and equipment are recorded at cost and are depreciated on
accelerated methods over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
economic lives or the terms of the lease. Estimates of useful lives by asset
classification are as follows:

<TABLE>
<S> <C>
Office equipment............................................ 5-7 years
Computer equipment.......................................... 5 years
Computer software........................................... 5 years
Leasehold improvements...................................... 5 years
</TABLE>

Expenditures for renewals and betterments are capitalized, while repairs
and maintenance costs are expensed as incurred.

Intangible Assets --

The Company amortizes its intangible assets over the lives of the
respective arrangements (Note 4). The Company regularly evaluates whether events
and circumstances have occurred which may indicate the carrying amount of
intangible assets may warrant revision or may not be recoverable. When factors
indicate that certain intangible assets should be evaluated for possible
impairment, the Company uses an estimate of the future undiscounted net cash
flows of the related assets over their remaining lives in measuring whether the
assets are recoverable. As of September 30, 1996, the Company's intangible
assets were considered fully recoverable.

Self-Insurance Reserves --

During fiscal year 1995, the Company began self-insuring certain risks
related to workers' compensation claims. Additionally, during each of the fiscal
years ended September 30, the Company was substantially self-insured for
employee health care costs. The estimated costs of existing and future claims
related to workers' compensation claims and employee health care are accrued as
incidents occur. These accruals are based upon historical loss development
trends and may be subsequently revised based on developments relating to such
claims. The Company engages, from time-to-time, the services of a third party
actuary to assist with the development of cost estimates for workers'
compensation claims.

Income Taxes --

Deferred income taxes are provided for the effect of temporary differences
between the tax bases of assets and liabilities and their reported amounts in
the financial statements. The Company uses the liability method to account for
income taxes, which requires deferred taxes to be recorded at the statutory rate
expected to be in effect when the taxes are paid.

Fair Value of Financial Instruments --

The Company's financial instruments principally represent cash and cash
equivalents, a note payable to a stockholder and bank borrowing arrangements
secured by accounts receivable. The carrying value of cash and cash equivalents
approximates fair value due to its short-term nature. The carrying value of the
note payable to a stockholder and the Company's borrowing arrangements secured
by accounts receivable, including the Company's line of credit, approximate fair
value based upon management's assessment of interest rates currently available
to the Company.

F-58
<PAGE> 109

HRA, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. BUSINESS COMBINATION:

On July 11, 1996, the Company completed the purchase of the assets and
intellectual property of Dorothy Johnson's Career Consultants, Inc. ("Career
Consultants") for a cash payment of $850,000. Career Consultants provides direct
placement services on a fee basis to companies primarily in the Nashville,
Tennessee area. In addition, the Company entered into a non-compete agreement
with the principal stockholder of Career Consultants. The purchase was financed
with borrowings under the Company's line of credit (Note 6), which was extended
in contemplation of this transaction.

Since the acquisition of Career Consultants was accounted for as a
purchase, the Company recorded Career Consultant's assets and liabilities at
their estimated fair market values at the date of the acquisition. Results of
operations of Career Consultants are included in the accompanying financial
statements subsequent to July 11, 1996. Of the total consideration paid for
Career Consultants, $70,000 was associated with a non-compete agreement with the
remaining purchase price in excess of the estimated fair market value of the net
assets acquired of approximately $769,000 being recorded as goodwill. In
connection with the purchase of Career Consultants, the Company incurred certain
legal and other costs of approximately $13,000.

The following unaudited pro forma combined results for fiscal years 1995
and 1996 give effect to the acquisition of Career Consultants as if it had
occurred at the beginning of those periods. This pro forma information does not
necessarily represent what the results would have been had the acquisition
actually occurred at the beginning of each period presented.

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenue................................................... $19,243,686 $25,906,321
Income (loss) before taxes................................ (249,334) 894,097
Net income (loss)......................................... (158,410) 542,876
</TABLE>

3. PROPERTY AND EQUIPMENT:

Components of property and equipment are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Office equipment............................................ $ 65,237 $134,387
Computer equipment.......................................... 141,200 173,192
Computer software........................................... 76,715 139,179
Leasehold improvements...................................... 17,569 42,474
-------- --------
300,721 489,232
Less accumulated depreciation and amortization.............. 156,542 231,145
-------- --------
$144,179 $258,087
======== ========
</TABLE>

Depreciation and amortization expense related to property and equipment
totaled $45,783, $61,847 and $74,603 for fiscal years 1994, 1995 and 1996,
respectively.

F-59
<PAGE> 110

HRA, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. INTANGIBLE ASSETS:

During fiscal year 1995, the Company entered into a Consulting and
Noncompetition Agreement with an individual operating a temporary personnel
agency in Lebanon, Tennessee. The agreement, as amended, called for an initial
payment of $41,000 and contingent consideration of up to $67,000, based upon
certain performance events. Contingent consideration payments during fiscal
years 1995 and 1996 totaled approximately $1,700 and $6,600, respectively. The
Company is amortizing this arrangement over the 48 month term of the agreement.

<TABLE>
<CAPTION>
AMORTIZATION METHODS
1995 1996 AND PERIODS
------- ---------- --------------------
<S> <C> <C> <C>
Consulting and noncompetition
agreements..................... $41,000 $ 111,000 Straight-line over 4 & 5 years
Noncompete agreement with a
former stockholder (see Note
11)............................ -- 139,637 Straight-line over 10 years
Goodwill (Note 2)................ -- 769,202 Straight-line over 30 years
Other (Note 2)................... -- 18,407 Straight-line over 5 years
------- ----------
41,000 1,038,246
Less accumulated amortization.... 3,844 36,938
------- ----------
$37,156 $1,001,308
======= ==========
</TABLE>

Amortization expense totaled $3,844 and $33,094 in fiscal years 1995 and
1996, respectively.

5. BORROWINGS UNDER ACCOUNTS RECEIVABLE FINANCING ARRANGEMENT:

During fiscal year 1994, the Company entered into a "Purchase of Accounts"
agreement with SouthTrust Bank (the "Bank") whereby the Bank agreed to purchase
up to $750,000 of the Company's trade accounts receivable on a revolving basis.
The agreement gave the Company the option to repurchase these receivables from
the Bank at any time and gave the Bank full recourse to the Company for any
accounts receivable which were not collected. Accordingly, this arrangement has
been reflected as a financing transaction in the accompanying financial
statements.

As of September 30, 1995, the receivables financed pursuant to this
agreement totaled $502,512. The agreement required the Company to pay a service
charge equal to 1.50% of the face amount of each account financed by the Bank.
Service charges were $7,538 for fiscal year 1995 and have been reflected in
interest expense in the accompanying statements of income (loss). In addition,
the Company was required to maintain a cash reserve account at the Bank in an
amount equal to at least 10% of the receivables financed and meet certain other
restrictive covenants.

6. LINE OF CREDIT:

In November 1995, the Company replaced its "Purchase of Accounts" bank
agreement (Note 5) with a revolving line of credit with the same bank. Under the
revolving line of credit, the Company may borrow an amount equal to 80% of its
outstanding Eligible Accounts Receivable, as defined, not to exceed an aggregate
borrowing of $1,500,000.

Borrowings are collateralized by the Company's accounts receivable and are
guaranteed by the Company's stockholders. Interest is payable monthly on
outstanding borrowings at the Bank's base rate plus 1.25% (weighted average rate
of 8.55% during fiscal year 1996). Under the terms of the line of credit
agreement, the Company has certain dividend restrictions and is required, among
other things, to maintain

F-60
<PAGE> 111

HRA, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

certain financial ratios. The Company is in compliance with or has received
waivers through maturity for all covenants of this line of credit as of
September 30, 1996.

As of September 30, 1996, the Company had borrowed $1,340,000 under this
line of credit and principally used the proceeds to fund the acquisition of
Career Consultants (Note 2).

As discussed in Note 2, the line of credit was extended on July 11, 1996.
The extension agreement allows the Company to borrow an amount equal to 85% of
its outstanding Eligible Accounts Receivable, as defined, not to exceed an
aggregate borrowing of $2,000,000, and also extends the maturity date from
November 20, 1996 to January 20, 1997. An additional provision requires that
$160,000 of the amount available under the line be held in reserve until certain
indebtedness of the Company is paid in full or is subordinated to the security
interest of the Bank.

7. NOTE PAYABLE TO LIBERTY MUTUAL:

On September 27, 1996, the Company settled a lawsuit with its former
workers' compensation insurance carrier, in which the Company had disputed the
amount of insurance premiums owed for fiscal years 1993 and 1994 and a portion
of fiscal year 1995. The settlement totaled $641,394 and calls for the Company
to make an initial payment of $100,000, with the balance due in 36 monthly
installments of $16,470, including interest at 6%. The note may be prepaid in
whole or in part at any time without penalty. In the event that the Company
elects to prepay the note, the Company will be entitled to a 10% discount of the
present value of the balance outstanding at prepayment date. The Company had
provided for these disputed amounts in the fiscal years in which they arose.
Annual maturities pursuant to this note are as follows:

8. NOTE PAYABLE TO A STOCKHOLDER:

As of September 30, 1995 and 1996, the Company had a note payable to a
former stockholder for $122,000 and $116,000, respectively. The note was due on
demand and bore interest at 8.75%. The note was secured by the Company's
accounts receivable not previously pledged. For the years ended September 30,
1994, 1995 and 1996, interest expense on this note totaled $18,636, $12,100 and
$11,310, respectively.

In connection with the purchase of this stockholder's common stock in the
Company by two of the remaining stockholders (Note 11), this note was amended
whereby, beginning in December 1995, interest payments will be made monthly at a
rate of 9.75%. The note is unsecured and requires principal payments beginning
in December 1997.

As of September 30, 1996, the Company owed $116,000 pursuant to this
amended note agreement. Annual maturities pursuant to this note are as follows:

<TABLE>
<S> <C>
1997........................................................ $ --
1998........................................................ 35,753
1999........................................................ 57,917
2000........................................................ 20,301
Thereafter.................................................. 2,029
--------
$116,000
========
</TABLE>

F-61
<PAGE> 112

HRA, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES:

Components of the provision for income taxes were as follows:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal......................................... $194,600 $ 10,180 $ 391,206
State........................................... 36,700 4,100 73,400
Deferred.......................................... (10,200) (98,440) (111,600)
-------- -------- ---------
$221,100 $(84,160) $ 353,006
======== ======== =========
</TABLE>

A reconciliation of taxes at the statutory federal income tax rate to the
Company's effective income tax rate for the years ended September 30 follows:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Taxes at statutory U.S. income tax rate............ $201,075 $(80,775) $305,064
Increase (decrease) resulting from:
Tax penalties...................................... 846 -- --
State income taxes, net of federal benefit......... 23,855 2,666 45,837
Effect of graduated federal income tax rate........ (7,672) (9,933) (5,150)
Meals and entertainment and other.................. 2,996 3,882 7,255
-------- -------- --------
$221,100 $(84,160) $353,006
======== ======== ========
</TABLE>

Deferred income taxes result from differences in the timing of recognition
of revenues and expenses for financial reporting and income tax purposes. The
components of the Company's net deferred income tax assets are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Compensation arrangements................................... $ 65,000 $ 87,800
Vacation and workers' compensation reserves................. 160,000 238,700
Other....................................................... -- 10,100
-------- --------
$225,000 $336,600
======== ========
</TABLE>

The deferred income tax assets recorded in the accompanying balance sheets
represent potential future income tax benefits. These future income tax benefits
are expected to be realized through the reduction of income taxes otherwise
payable when reversals of temporary differences occur between the financial
reporting and income tax basis of the Company's assets and liabilities.

10. WORKERS' COMPENSATION:

During fiscal year 1995, the Company began self-insuring certain risks
related to workers' compensation claims and is regulated by the Workers'
Compensation Insurance Commission in the state of Tennessee. The Company has
purchased insurance for claims which exceed $250,000 per employee. To satisfy
unpaid claims, the Company deposits amounts with a third party administrator. At
the Company's option, it may withdraw its deposits upon notification to its
third party administrator. Included in prepaids and other in the accompanying
balance sheets are deposits to fund workers' compensation claims totaling
$451,617 and $722,000 as of September 30, 1995 and 1996, respectively. Workers'
compensation expense totaled $664,468 and $1,270,271 and $1,306,212 for fiscal
years 1994, 1995 and 1996, respectively.

F-62
<PAGE> 113

HRA, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11. RELATED PARTY TRANSACTIONS:

Stockholder Transaction --

During November 1995, two of the Company's stockholders purchased from
another stockholder his entire common stock interest in the Company
(approximately 32%). In conjunction with this transaction, the Company acted as
guarantor on the notes payable issued by the acquiring stockholders for the
stock in the amount of $150,000. Separately, the Company entered into a
severance arrangement and noncompete agreement through November 2003 with this
former stockholder (Note 12).

Dividend Distributions to Stockholders --

In conjunction with the stockholder transaction described above and other
matters, the Company advanced via dividend distributions, $250,000 to two of its
stockholders during November 1995.

The Company has paid $47,289 for consulting and other professional services
related to the Company's participation in the merger transaction discussed in
Note 16. These costs are to be borne by the stockholders of the Company, and
have been reflected as dividends to stockholders in the accompanying statement
of stockholders' equity as of September 30, 1996.

Other --

In November 1995, the Company settled a controversy concerning an option
held by certain parties to acquire 30% of the common stock of the Company.
Pursuant to the Settlement Agreement and Release, the rights under the option
were transferred to two of the Company's existing stockholders for $90,000,
which was paid by the Company. This payment was expensed in fiscal year 1996.

Included in general and administrative expenses are advisor and/or director
fees paid or payable to the stockholders of the Company totaling $69,000 and
$94,000 for the years ended September 30, 1994 and 1995. No such fees were
accruable for the year ended September 30, 1996.

12. COMMITMENTS AND CONTINGENCIES:

The Company has deferred compensation arrangements with various consultants
and/or employees of the Company, some of which are no longer providing services
to the Company.

In November 1991, the Company entered into an arrangement with a consultant
for services rendered in connection with the formation of the Company. The
arrangement called for weekly payments of $1,000 for 312 weeks. The Company
expensed the discounted value of the obligation in fiscal year 1992 and
reflected a deferred compensation liability at that time. In fiscal year 1994,
the Company discontinued payments under this arrangement. In December 1994, the
consultant and the Company entered into an arbitration agreement and the Company
has resumed its payments under this agreement.

On November 28, 1995, the Company entered into severance and noncompete
agreements with a former stockholder in connection with the purchase of such
stockholder's common stock in the Company by two of the remaining stockholders
(Note 11). Pursuant to these agreements, the Company was to pay the former
stockholder, beginning on December 15, 1995, as follows:

- $30,000 as bonus for fiscal year 1995 to be paid in $2,500 monthly
installments.

- $150,000 as a severance arrangement to be paid in monthly installments of
$5,690 through November 15, 1996, $5,647 through November 15, 1997 and
$1,163 through November 15, 1998.

- $236,518 as a noncompete agreement to be paid in graduating monthly
payments through November 15, 2003.

F-63
<PAGE> 114

HRA, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

With respect to these arrangements, the Company expensed the bonus payment
in fiscal year 1995. The discounted value of the severance agreement (8.75%
discount rate) was expensed in fiscal year 1996, with a related liability
established in the accompanying balance sheets. The discounted value of the
noncompete agreement (8.75% discount rate) was recorded as an intangible asset
(Note 4) and a related liability was established in the accompanying balance
sheets.

The following summarizes the Company's obligations under these deferred
compensation arrangements:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Consulting arrangement...................................... $171,031 $127,332
Severance agreement with a former stockholder............... -- 87,015
Noncompete agreement with a former stockholder.............. -- 141,975
-------- --------
171,031 356,322
Less current portion........................................ 43,699 108,939
-------- --------
$127,332 $247,383
======== ========
</TABLE>

Annual maturities pursuant to these deferred compensation arrangements are
as follows:

<TABLE>
<S> <C>
1997........................................................ $111,955
1998........................................................ 61,079
1999........................................................ 35,402
2000........................................................ 5,911
2001........................................................ --
Thereafter.................................................. 141,975
--------
$356,322
========
</TABLE>

13. NONCANCELABLE OPERATING LEASES:

The Company leases office locations and certain equipment under
noncancelable operating lease agreements expiring at various times through June
30, 1998. Future minimum payments required under operating leases that have an
initial or remaining noncancelable lease term in excess of one year at September
30, 1996, are as follows:

Rent expense totaled $143,430, $194,096 and $228,686 for fiscal years 1994,
1995 and 1996, respectively.

14. SAVINGS AND RETIREMENT PLAN:

During fiscal year 1995, the Company made available to all permanent
employees with one year of service a savings and retirement plan. The plan, at
the Company's option, may be terminated at any time and allows participants to
defer a portion of their after tax salary and receive a matching employer
contribution of up to 2% of the participants' annual salary based on years of
service. Matching contributions are made in January of the following fiscal year
for participants who remain employed by the Company. Matching contributions of
approximately $8,000 and $7,600 were made during fiscal years 1995 and 1996,
respectively. The plan also

F-64
<PAGE> 115

HRA, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

allows the Company to contribute additional amounts at the discretion of
management. Any such amounts contributed are to be allocated equally among all
eligible participants. Management authorized discretionary contributions of
$24,000 and $7,800 for fiscal years 1995 and 1996, respectively. Contributions
deposited into the plan are held by an unrelated third party and are registered
in the name of the participants.

15. LITIGATION:

In April 1996, the Company settled a dispute with a professional firm that
had previously represented them in certain actions related to workers'
compensation insurance and received cash of approximately $245,000, which is
included in other income for the fiscal year ending September 30, 1996.

The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the aggregate
liability, if any, with respect to these proceedings will not materially
adversely affect the financial position or results of operations of the Company.

16. PENDING BUSINESS COMBINATION:

In June 1996, the owners of the Company entered into a definitive agreement
to merge with StaffMark, Inc. ("StaffMark") in conjunction with StaffMark's
anticipated initial public offering. Effective October 2, 1996, StaffMark
completed the initial public offering. In conjunction with this merger, the
owners will enter into employment agreements which provide for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a covenant not to compete following termination of such person's employment.
Prior to or coincident with this proposed merger, the Company's leased
automobiles will be transferred to the respective stockholders.

The Company advanced $31,250 to StaffMark as an advance to fund
organizational and other costs related to the merger and StaffMark's initial
public offering.

Subsequent to fiscal year 1996, using a portion of the proceeds from the
completed initial public offering described above, the Company repaid $1,340,000
borrowed under its line of credit (Note 6) and retired certain other obligations
outstanding to a former stockholder of approximately $489,000 (Notes 8, 11 and
12).

17. SUBSEQUENT EVENT:

In November 1996, two of the principal stockholders of the Company remitted
$109,000 to the Company representing dividends previously distributed as
described in Note 11.

F-65
<PAGE> 116

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To First Choice Staffing, Inc.:

We have audited the accompanying balance sheets of First Choice Staffing,
Inc. (a South Carolina corporation) as of December 31, 1994 and 1995, and
September 29, 1996, and the related statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended December
31, 1995, and the nine-month period ended September 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures to the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Choice Staffing, Inc.
as of December 31, 1994 and 1995, and September 29, 1996, and the results of its
operations and its cash flows for each of the three fiscal years in the period
ended December 31, 1995, and the nine-month period ended September 29, 1996, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Raleigh, North Carolina,
October 22, 1996.

F-66
<PAGE> 117

FIRST CHOICE STAFFING, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
FISCAL YEARS
----------------------- SEPTEMBER 29,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 194,111 $ 268,440 $ 174,946
Accounts receivable, net................................. 1,078,340 1,145,532 1,835,493
Prepaid expenses and other............................... 71,100 72,171 31,467
---------- ---------- ----------
Total current assets............................. 1,343,551 1,486,143 2,041,906
PROPERTY AND EQUIPMENT, net................................ 196,110 327,240 348,628
OTHER ASSETS:
Investment in captive insurance pool..................... 36,000 36,000 36,000
Advance to StaffMark, Inc................................ -- -- 31,801
Other.................................................... -- -- 727,194
---------- ---------- ----------
Total other assets............................... 36,000 36,000 794,995
---------- ---------- ----------
$1,575,661 $1,849,383 $3,185,529
========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit........................................... $ -- $ 200,000 $ 225,000
Accounts payable......................................... 21,326 65,608 99,853
Accrued workers' compensation............................ 92,347 46,359 27,083
Payroll and related benefits............................. 630,555 534,047 510,688
Other accrued expenses................................... 7,000 5,735 --
Current maturities of long-term debt..................... -- -- 1,488,754
Note payable to stockholder.............................. 250,000 180,000 --
---------- ---------- ----------
Total current liabilities........................ 1,001,228 1,031,749 2,351,378
LONG-TERM DEBT, less current maturities.................... -- -- 500,000
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 8 and 9)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 100,000 shares authorized,
10,000 shares issued and outstanding.................. 10,000 10,000 10,000
Retained earnings........................................ 564,433 807,634 324,151
---------- ---------- ----------
Total stockholders' equity....................... 574,433 817,634 334,151
---------- ---------- ----------
$1,575,661 $1,849,383 $3,185,529
========== ========== ==========
</TABLE>

The accompanying notes to financial statements
are an integral part of these balance sheets.

F-67
<PAGE> 118

FIRST CHOICE STAFFING, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS -----------------------------
--------------------------------------- SEPTEMBER 24, SEPTEMBER 29,
1993 1994 1995 1995 1996
----------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES................ $10,807,801 $13,007,484 $13,703,404 $9,956,709 $12,695,551
COST OF SERVICES................ 8,825,086 10,573,111 11,149,085 8,105,090 10,186,083
----------- ----------- ----------- ---------- -----------
Gross profit.................. 1,982,715 2,434,373 2,554,319 1,851,619 2,509,468
OPERATING EXPENSES:
Selling, general and
administrative............. 1,361,834 2,485,029 2,258,780 1,605,478 1,780,660
Depreciation and
amortization............... 34,570 34,357 32,923 24,693 79,068
----------- ----------- ----------- ---------- -----------
Operating income (loss).... 586,311 (85,013) 262,616 221,448 649,740
OTHER INCOME (EXPENSE):
Interest expense.............. (71) (26,109) (19,415) (15,717) (33,416)
Other, net.................... (2,427) 2,256 -- -- (1,053)
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES.... 583,813 (108,866) 243,201 205,731 615,271
PROVISION (BENEFIT) FOR INCOME
TAXES......................... 232,787 (168,251) -- -- --
----------- ----------- ----------- ---------- -----------
NET INCOME...................... $ 351,026 $ 59,385 $ 243,201 $ 205,731 $ 615,271
=========== =========== =========== ========== ===========
PRO FORMA DATA (Unaudited) (Note
10):
Historical Income before
income taxes............... $ 243,201 $ 615,271
Less pro forma provision for
income taxes............... 94,848 239,956
----------- -----------
PRO FORMA NET INCOME............ $ 148,353 $ 375,315
=========== ===========
</TABLE>

The accompanying notes to financial statements
are an integral part of these statements.

F-68
<PAGE> 119

FIRST CHOICE STAFFING, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992....................... 10,000 $10,000 $ 154,022 $ 164,022
Net income..................................... -- -- 351,026 351,026
------ ------- ----------- -----------
BALANCE, December 31, 1993....................... 10,000 10,000 505,048 515,048
Net income..................................... -- -- 59,385 59,385
------ ------- ----------- -----------
BALANCE, December 31, 1994....................... 10,000 10,000 564,433 574,433
Net income..................................... -- -- 243,201 243,201
------ ------- ----------- -----------
BALANCE, December 31, 1995....................... 10,000 10,000 807,634 817,634
Net income..................................... -- -- 615,271 615,271
Distributions.................................. -- -- (1,098,754) (1,098,754)
------ ------- ----------- -----------
BALANCE, September 29, 1996...................... 10,000 $10,000 $ 324,151 $ 334,151
====== ======= =========== ===========
</TABLE>

The accompanying notes to financial statements
are an integral part of these statements.

F-69
<PAGE> 120

FIRST CHOICE STAFFING, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS -----------------------------
--------------------------------- SEPTEMBER 24, SEPTEMBER 24,
1993 1994 1995 1995 1996
--------- --------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 351,026 $ 59,385 $ 243,201 $ 205,731 $ 615,271
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization.................. 34,570 34,357 32,923 24,693 79,068
Loss on sale of equipment...................... -- -- -- -- 1,053
Deferred income taxes.......................... (3,908) 11,256 -- -- --
Change in operating assets and liabilities:
Accounts receivable, net..................... (311,121) (149,482) (67,192) (67,512) (689,961)
Prepaid expenses and other................... (32,022) (15,485) (1,071) 42,486 40,704
Other assets................................. (158,104) -- -- -- (735,406)
Accounts payable............................. 12,587 (2,923) 44,282 46,555 34,245
Accrued workers' compensation................ 68,247 10,867 (45,988) (132,269) (19,276)
Payroll and related liabilities.............. 189,670 259,929 (96,508) (3,820) (23,359)
Accrued income taxes......................... 54,275 (153,072) -- -- --
Other accrued expenses....................... 3,158 (9,256) (1,265) (7,000) (5,735)
--------- --------- --------- --------- -----------
Net cash provided by (used in) operating
activities............................... 208,378 45,576 108,382 108,864 (703,396)
--------- --------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (53,582) (120,441) (164,053) (150,833) (93,297)
Advance to StaffMark, Inc. ...................... -- -- -- -- (31,801)
--------- --------- --------- --------- -----------
Net cash used in investing activities...... (53,582) (120,441) (164,053) (150,833) (125,098)
--------- --------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions.................................... -- -- -- -- (1,098,754)
Proceeds from (payments on) line of credit....... (191,038) -- 200,000 -- 25,000
Proceeds from issuance of long-term debt......... -- -- -- -- 1,988,754
Proceeds from note payable to stockholder........ 9,349 250,000 -- -- --
Payments on note payable to stockholder.......... -- (9,349) (70,000) (70,000) (180,000)
--------- --------- --------- --------- -----------
Net cash provided by (used in) financing
activities............................... (181,689) 240,651 130,000 (70,000) 735,000
--------- --------- --------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... (26,893) 165,786 74,329 (111,969) (93,494)
CASH AND CASH EQUIVALENTS, beginning of period..... 55,218 28,325 194,111 194,111 268,440
--------- --------- --------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period........... $ 28,325 $ 194,111 $ 268,440 $ 82,142 $ 174,946
========= ========= ========= ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid.................................... $ 71 $ 26,109 $ 19,415 $ 6,285 $ 19,502
========= ========= ========= ========= ===========
Taxes paid (refunded)............................ $ 189,769 $ (26,393) $ -- $ -- $ --
========= ========= ========= ========= ===========
</TABLE>

The accompanying notes to financial statements
are an integral part of these statements.

F-70
<PAGE> 121

FIRST CHOICE STAFFING, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization --

First Choice Staffing, Inc. (the "Company"), a South Carolina corporation,
provides temporary personnel services primarily for industrial and clerical
needs in the greater Charlotte, North Carolina, metropolitan region. The
business was initially founded and incorporated in 1986 as a Dunhill Temporary
Systems franchise. In 1989, the founders bought out the Dunhill franchise
contract and formed First Choice Temporary Staffing, Inc. In 1993, the Company
changed its name to First Choice Staffing, Inc.

Reorganization --

Prior to reorganization on April 1, 1994, the Company was a wholly owned
subsidiary of Gregory Personnel, Inc. ("Gregory Personnel"). Gregory Personnel
was formed as a holding company in connection with the acquisition by one 50%
stockholder of the other 50% stockholder's interest in the Company in 1990.
Gregory Personnel had no operations and had assets consisting primarily of a
noncompete agreement arising from the acquisition of the former 50%
stockholder's interest in the Company. The noncompete agreement was amortized
over three years. On April 1, 1994, Gregory Personnel was merged downstream with
the Company, leaving the Company as the surviving entity.

Basis of Presentation --

The accompanying financial statements include the accounts of Gregory
Personnel for the period prior to the merger effective April 1, 1994. Due to the
change in control of the Company occurring upon the acquisition of the former
50% stockholder's interest in 1990, this acquisition was accounted for as a
purchase resulting in the recording of certain intangible assets. See above for
further discussion.

Fiscal Periods --

For presentation purposes, the accompanying financial statements have been
prepared by the Company on a calendar year basis. However, the Company's fiscal
year actually ends on the last Sunday in December. The interim financial
information as of September 29, 1996, and for the nine-month periods ended
September 24, 1995 (unaudited), and September 29, 1996, correspond to the
Company's fiscal quarters which ended on the last Sunday in September.

Interim Financial Statements --

The accompanying interim financial statements and related disclosures for
the nine-month period ended September 24, 1995 have not been audited by
independent accountants. However, the interim financial statements have been
prepared in conformity with the accounting principles stated in the audited
financial statements of the three years in the period ended December 31, 1995,
and include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company and the results of operations and cash flows for the interim periods.
The operating results for all interim periods presented are not necessarily
indicative of results for the full year.

Revenue Recognition --

Service revenues are recognized as income at the time staffing services are
provided to the customer.

Use of Estimates --

F-71
<PAGE> 122

FIRST CHOICE STAFFING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

revenues and expenses and disclosures of contingent assets and liabilities. The
estimates and assumptions used in the accompanying financial statements are
based upon management's evaluation of the relevant facts and circumstances as of
the date of the financial statements. Actual results may differ from the
estimates and assumptions used in preparing the accompanying financial
statements.

Cash and Cash Equivalents --

Accounts Receivable --

The Company maintains allowances for potential losses which management
believes are adequate to absorb losses to be incurred in realizing the amounts
recorded in the accompanying financial statements. The Company has recorded an
allowance for doubtful accounts of $25,000 at December 31, 1994, December 31,
1995 and September 29, 1996. Included in accounts receivable in the accompanying
balance sheets are unbilled amounts of $188,778, $172,834 and $380,414 at
December 31, 1994, December 31, 1995 and September 29, 1996, respectively.

Property and Equipment --

Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets which are as
follows:

<TABLE>
<S> <C>
Office equipment............................................ 7 years
Computer equipment.......................................... 5 years
Vehicles.................................................... 5 years
Computer software........................................... 3 years
Leasehold improvements...................................... 7 years
</TABLE>

Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and the related accumulated
depreciation are removed from the balance sheet and any resultant gain or loss
is recorded.

Other Assets --

Other assets contain an investment in a captive workers' compensation
insurance pool of which the Company is a member, an advance to StaffMark, Inc.
(as described in Note 8) and goodwill and a noncompete agreement, recorded in
conjunction with the acquisition of Strategic Sourcing, Inc. ("SSI") (see Note
9). The goodwill is amortized using the straight-line method over its estimated
economic life of 30 years. The investment in the insurance pool is accounted for
by the Company under the cost method.

Fair Value of Financial Instruments --

The Company's financial instruments include cash and cash equivalents, note
payable to stockholder and its other debt obligations. Management believes that
these instruments bear interest at rates which approximate prevailing market
rates for instruments with similar characteristics and, accordingly, that the
carrying values for those instruments are reasonable estimates of fair value.

F-72
<PAGE> 123

FIRST CHOICE STAFFING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Concentration of Credit Risk --

Credit risk with respect to accounts receivable is dispensed due to the
nature of the business, the large number of customers and the diversity of
industries serviced. The Company performs credit evaluations of all its
customers.

Income Taxes --

Prior to April 1, 1994, the Company was a C Corporation and, accordingly,
was subject to federal and state income taxes. The Company accounted for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which recognizes deferred tax assets and
liabilities for future tax consequences attributed to differences between the
financial statement and income tax basis of assets and liabilities and operating
loss carryforwards.

In connection with the reorganization in April 1994, the Company elected
subchapter S Corporation status for federal and state income tax reporting
purposes. Accordingly, no provision for income taxes has been recorded for
periods subsequent to this change in tax status as such tax liabilities arising
from the date of election as a subchapter S Corporation are liabilities of the
stockholders of the Company. Also in connection with the April 1994
reorganization, the Company changed its tax year-end from March 31 to December
31.

The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change in the Company's
reported income or loss, the taxable income or loss reported by the individual
stockholders could also change.

2. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
FISCAL YEAR
-------------------- SEPTEMBER 29,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Office equipment................................. $117,938 $171,842 $200,981
Computer equipment............................... 123,966 153,405 199,337
Vehicles......................................... 16,301 26,501 26,501
Computer software................................ 33,531 45,775 55,805
Leasehold improvements........................... 56,009 83,248 88,103
-------- -------- --------
347,745 480,771 570,727
Less accumulated depreciation.................... 151,635 153,531 222,099
-------- -------- --------
$196,110 $327,240 $348,628
======== ======== ========
</TABLE>

3. DEBT:

The Company has a revolving line of credit with a bank. Maximum borrowings
under the line are equal to the lesser of $500,000 or 80% of the Company's
eligible accounts receivable, as defined within the line of credit agreement.
The line is secured by the Company's accounts receivable and interest is payable
monthly at prime (8.25% at September 29, 1996), with principal due June 17,
1997. The weighted average interest rate was approximately 8.25% for the nine
months ended September 29, 1996. Amounts outstanding under the line were $0,
$200,000 and $225,000 as of December 31, 1994, December 31, 1995 and September
29, 1996, respectively. The line of credit is secured by a personal guaranty of
the majority stockholder. The Company had approximately $275,000 available under
its line of credit at September 29, 1996.

F-73
<PAGE> 124

FIRST CHOICE STAFFING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

During July 1996, the Company entered into a $375,000 note payable to the
seller of SSI (see Note 9). This note is payable in three equal installments of
$125,000 beginning on July 1, 1997, and bears interest at an annual rate of 7%.
This note is secured by the personal guaranty of the Company's majority
stockholder.

During July 1996, the Company entered into a $375,000 note payable to a
bank. This note is payable beginning October 5, 1996, in 36 monthly installments
of $10,417 plus interest at prime. Proceeds from this note were used for the
acquisition of SSI (see Note 9). This note is secured by the personal guaranty
of the Company's majority stockholder.

During September 1996, the Company entered into a $1,238,754 note payable
to a bank. This note is payable in full on November 25, 1996, and bears interest
at prime less 0.50%. Proceeds from this note were used to repay the note payable
to stockholder (see Note 4) and to fund the cash distribution of the Company's
estimated September 29, 1996 S Corporation Accumulated Adjustment Account
balance (see Note 8). This note is secured by the personal guaranty of the
Company's majority stockholder.

Certain of the debt instruments described above are subject to covenants
requiring that the Company achieve certain financial ratios and restrictions on
incurring additional debt. The Company was in compliance with or had obtained
waivers for these covenants as of September 29, 1996.

4. NOTE PAYABLE TO STOCKHOLDER:

The Company had an unsecured note payable to the majority stockholder with
interest payable semiannually in June and December at 8% and principal due on
demand. This note was repaid during September 1996.

5. INCOME TAXES:

Components of the tax provision (benefit) for the periods prior to the
subchapter S Corporation election, effective April 1, 1994, are shown below:

<TABLE>
<CAPTION>
FISCAL YEARS
---------------------
1993 1994
-------- ---------
<S> <C> <C>
Provision for (benefit from) income taxes --
Federal:
Current................................................ $188,194 $(127,554)
Deferred............................................... (3,607) (8,197)
-------- ---------
Total federal..................................... 184,587 (135,751)
-------- ---------
State:
Current................................................ 48,500 (32,800)
Deferred............................................... (300) 300
-------- ---------
Total state....................................... 48,200 (32,500)
-------- ---------
$232,787 $(168,251)
======== =========
</TABLE>

F-74
<PAGE> 125

FIRST CHOICE STAFFING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The income tax provision (benefit) for the periods prior to the subchapter
S Corporation election, effective April 1, 1994, differs from the amount
computed by applying the federal statutory rate of 34% to income before taxes
due to the following:

<TABLE>
<CAPTION>
FISCAL YEARS
---------------------
1993 1994
-------- ---------
<S> <C> <C>
Income tax provision computed at the federal statutory
rate...................................................... $199,321 $ (37,781)
State taxes, net of federal tax benefit..................... 30,953 (586)
Effect of permanent differences............................. 3,621 4,143
Elimination of net deferred tax liabilities upon subchapter
S Corporation election.................................... -- 3,827
Taxable income earned after subchapter S Corporation
election, not subject to taxation......................... -- (137,854)
Other....................................................... (1,108) --
-------- ---------
Provision (benefit) for income taxes........................ $232,787 $(168,251)
======== =========
</TABLE>

6. COMMITMENTS AND CONTINGENCIES:

Noncancelable Operating Leases --

The Company leases office space under noncancelable operating leases.
Approximate future minimum payments required under operating leases that have an
initial or remaining noncancelable lease term in excess of one year at December
31, 1995 and September 29, 1996, are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
-----------------------------
DECEMBER 31, SEPTEMBER 29,
1995 1996
------------ -------------
<S> <C> <C>
1996....................................................... $111,000 $ 32,000
1997....................................................... 101,000 114,000
1998....................................................... 86,000 91,000
1999....................................................... 68,000 68,000
2000....................................................... 43,000 43,000
Thereafter................................................. 78,000 78,000
-------- --------
$487,000 $426,000
======== ========
</TABLE>

Rental expense totaled $61,000, $82,000 and $103,000 for fiscal years 1993,
1994 and 1995, respectively, and $56,279 (unaudited) and $84,886 for the
nine-month periods ended September 24, 1995 and September 29, 1996,
respectively.

401(k) Plan --

In 1995, the Company adopted a 401(k) Savings Plan for its employees in
which the Company matches 50% of the employee's contributions up to 3% of the
employee's salary. The Company's contribution expense was $18,000 for 1995 and
$11,086 (unaudited) and $15,844 for the nine-month periods ended September 24,
1995 and September 29, 1996, respectively.

7. SIGNIFICANT CUSTOMERS:

The Company had one customer which represented 12%, 13%, 12%, 13% and 11%
of service revenues for the years ended December 31, 1993, 1994 and 1995, and
the nine-month periods ended September 24, 1995 (unaudited) and September 29,
1996, respectively. Another customer represented 11% of service revenues for

F-75
<PAGE> 126

FIRST CHOICE STAFFING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the year ended December 31, 1993. No other customer accounted for more than 10%
of service revenues for those periods.

8. SUBSEQUENT CLOSING OF BUSINESS COMBINATION:

In June 1996, the stockholders of the Company entered into a definitive
agreement to merge the Company with StaffMark, Inc. ("StaffMark") in conjunction
with StaffMark's anticipated initial public offering. Effective October 2, 1996,
StaffMark completed the initial public offering. In conjunction with the merger,
the majority stockholder entered into an employment agreement which provides for
a set base salary, participation in future incentive bonus plans, certain other
benefits and a covenant not to compete following termination of such person's
employment. During September 1996, in anticipation of the completion of this
merger, the Company made cash distributions of $1,098,754 which equal the
Company's estimated S Corporation Accumulated Adjustment Account as of September
29, 1996.

In April 1996, the Company advanced $31,250 to StaffMark to fund offering
costs related to StaffMark's initial public offering.

On October 2, 1996, using a portion of the proceeds from the completed
initial public offering, StaffMark repaid all of the Company's borrowings, debt
and interest obligations.

9. SIGNIFICANT ACQUISITION:

On July 1, 1996, the Company acquired certain of the operating assets of
SSI, a provider of permanent and temporary placement services to companies in
the market for information technology professionals. SSI was incorporated in May
1993 and is located in Charlotte, North Carolina. The total purchase price of
$700,000 and noncompete agreement with the seller of $50,000 were financed
through borrowings from a bank and execution of a promissory note payable to the
seller. All financing related to this acquisition is secured by the personal
guaranty of the majority stockholder. The acquisition has been accounted for
using the purchase method of accounting. Fixed assets acquired were recorded at
historical, depreciated cost, which approximated fair value as of the
acquisition date, and the remaining purchase price of approximately $685,000 has
been recorded as goodwill and will be amortized on a straight-line basis over
its estimated economic life of 30 years. The $50,000 noncompete agreement with
the seller will be amortized on a straight-line basis over its five year term.

10. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):

In conjunction with the merger with StaffMark as discussed in Note 8, the
Company changed from an S Corporation to a C Corporation for federal and state
income tax reporting purposes, which required the Company to recognize the tax
consequences of operations in its statements of income. The supplemental pro
forma information included in the accompanying statements of income reflect the
estimated impact of recognizing income tax expense as if the Company had been a
C Corporation for tax reporting purposes during the twelve months and nine
months ended December 31, 1995 and September 29, 1996, respectively.

F-76
<PAGE> 127

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Blethen Group:

We have audited the accompanying combined balance sheets of the companies
identified in Note 1 to the financial statements ("The Blethen Group"), as of
January 1, 1995, December 31, 1995, and September 29, 1996, and the related
combined statements of income (loss), stockholders' equity and cash flows for
each of the three fiscal years in the period ended December 31, 1995, and for
the nine months ended September 29, 1996. These financial statements are the
responsibility of The Blethen Group's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Blethen Group as of
January 1, 1995, December 31, 1995, and September 29, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 31, 1995, and for the nine months ended September 29,
1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Raleigh, North Carolina,
October 22, 1996.

F-77
<PAGE> 128

THE BLETHEN GROUP

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 31,921 $ 44,644 $ 115,773
Accounts receivable................................. 1,136,081 1,377,799 1,782,289
Deferred tax asset.................................. 5,500 11,000 16,000
Prepaid expenses and other.......................... 16,809 14,510 2,776
---------- ---------- ----------
Total current assets........................ 1,190,311 1,447,953 1,916,838
PROPERTY AND EQUIPMENT, net........................... 393,330 307,286 255,298
OTHER ASSETS:
Due from stockholders............................... 185,236 194,163 2,998
Deferred tax asset.................................. 24,100 20,760 --
Advances to StaffMark, Inc.......................... -- -- 31,250
Other............................................... 11,750 12,232 14,492
---------- ---------- ----------
Total other assets.......................... 221,086 227,155 48,740
---------- ---------- ----------
$1,804,727 $1,982,394 $2,220,876
========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit..................................... $ 764,645 $ 971,436 $1,175,203
Accounts payable.................................... 220,801 105,648 62,446
Outstanding checks.................................. -- 25,329 --
Payroll and related liabilities..................... 295,472 301,258 511,412
Current maturities of long-term debt................ 25,341 10,151 10,678
Current maturities of capital lease obligations..... 82,708 47,148 --
Current maturities of notes payable to related
parties.......................................... 83,308 62,813 105,582
Income taxes payable................................ 15,783 82,583 49,638
Accrued interest and other.......................... 16,001 55,043 25,967
---------- ---------- ----------
Total current liabilities................... 1,504,059 1,661,409 1,940,926
LONG-TERM DEBT, less current maturities............... 35,604 24,922 17,057
CAPITAL LEASE OBLIGATIONS, less current
maturities.......................................... 67,452 22,475 --
NOTES PAYABLE TO RELATED PARTIES, less current
maturities.......................................... 49,037 45,271 --
DEFERRED TAX LIABILITY................................ -- -- 26,300
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7 and 8)
STOCKHOLDERS' EQUITY:
Common stock........................................ 8,399 8,399 8,399
Additional paid-in capital.......................... 8,940 8,940 8,940
Retained earnings................................... 131,236 210,978 219,254
---------- ---------- ----------
Total stockholders' equity.................. 148,575 228,317 236,593
---------- ---------- ----------
$1,804,727 $1,982,394 $2,220,876
========== ========== ==========
</TABLE>

The accompanying notes to combined financial
statements are an integral part of these balance sheets.

F-78
<PAGE> 129

THE BLETHEN GROUP

COMBINED STATEMENTS OF INCOME (LOSS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ---------------------------
--------------------------------------- OCTOBER 1, SEPTEMBER 29,
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES................. $11,197,726 $11,966,633 $13,380,157 $9,743,890 $12,047,667
COST OF SERVICES................. 8,131,773 8,729,634 9,743,747 7,211,548 9,084,803
----------- ----------- ----------- ---------- -----------
Gross profit................... 3,065,953 3,236,999 3,636,410 2,532,342 2,962,864
OPERATING EXPENSES:
Selling, general and
administrative.............. 3,042,816 2,789,866 3,105,682 2,115,861 2,274,816
Depreciation and
amortization................ 134,968 122,963 111,437 83,578 83,475
----------- ----------- ----------- ---------- -----------
Operating income (loss)..... (111,831) 324,170 419,291 332,903 604,573
OTHER INCOME (EXPENSE):
Interest expense............... (134,815) (137,448) (140,800) (100,702) (112,958)
Other, net..................... 19,467 2,917 10,884 4,760 (8,392)
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES..... (227,179) 189,639 289,375 236,961 483,223
PROVISION (BENEFIT) FOR INCOME
TAXES.......................... (136,263) 49,000 81,000 71,000 76,755
----------- ----------- ----------- ---------- -----------
Net income (loss)...... $ (90,916) $ 140,639 $ 208,375 $ 165,961 $ 406,468
=========== =========== =========== ========== ===========
PRO FORMA DATA (Unaudited) (Note
9):
Historical income before income
taxes....................... $ 289,375 $ 483,223
Less pro forma provision for
income taxes................ 112,856 188,457
----------- -----------
PRO FORMA NET INCOME............. $ 176,519 $ 294,766
=========== ===========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these statements.

F-79
<PAGE> 130

THE BLETHEN GROUP

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, January 4, 1993.......................... $8,543 $ 32,265 $ 239,861 $ 280,669
Net loss........................................ -- -- (90,916) (90,916)
Dividends....................................... -- -- (57,343) (57,343)
------ -------- --------- ---------
BALANCE, January 2, 1994.......................... 8,543 32,265 91,602 132,410
Net income...................................... -- -- 140,639 140,639
Dividends....................................... -- -- (99,474) (99,474)
Repurchase and retirement of common stock....... (144) (23,325) (1,531) (25,000)
------ -------- --------- ---------
BALANCE, January 1, 1995.......................... 8,399 8,940 131,236 148,575
Net income...................................... -- -- 208,375 208,375
Dividends....................................... -- -- (128,633) (128,633)
------ -------- --------- ---------
BALANCE, December 31, 1995........................ 8,399 8,940 210,978 228,317
Net income...................................... -- -- 406,468 406,468
Dividends....................................... -- -- (398,192) (398,192)
------ -------- --------- ---------
BALANCE, September 29, 1996....................... $8,399 $ 8,940 $ 219,254 $ 236,593
====== ======== ========= =========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these statements.

F-80
<PAGE> 131

THE BLETHEN GROUP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ---------------------------
--------------------------------- OCTOBER 1, SEPTEMBER 29,
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ (90,916) $ 140,639 $ 208,375 $165,961 $ 406,468
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 134,968 122,963 111,437 83,578 83,475
Provision for (benefit from) deferred income
taxes......................................... (136,263) 29,898 (2,160) (1,400) 42,060
Change in operating assets and liabilities:
Accounts receivable............................. (17,767) (54,870) (241,718) (211,584) (404,490)
Prepaid expenses and other...................... (14,096) 30,971 2,299 (26,299) 11,734
Other assets.................................... 21,491 5,769 (482) 11,750 (2,260)
Accounts payable................................ 180,570 (97,532) (115,153) 10,471 (43,202)
Outstanding checks.............................. -- -- 25,329 -- (25,329)
Payroll and related liabilities................. (75,190) 65,663 5,786 1,099 210,154
Income taxes payable (receivable)............... (13,711) 29,494 66,800 56,040 (32,945)
Accrued interest and other...................... 77,477 (55,306) 39,042 98,575 (29,076)
--------- --------- --------- -------- ---------
Net cash provided by operating activities... 66,563 217,689 99,555 188,191 216,589
--------- --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (130,178) (72,119) (25,393) (6,396) (31,487)
Advances to StaffMark............................. -- -- -- -- (31,250)
--------- --------- --------- -------- ---------
Net cash used in investing activities............. (130,178) (72,119) (25,393) (6,396) (62,737)
--------- --------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit.................. 53,773 10,681 206,791 48,151 203,767
Proceeds from issuance of long-term debt.......... 12,851 54,172 -- -- --
Payments on long-term debt........................ (28,243) (10,282) (25,872) (5,170) (7,338)
Payments on capital lease obligations............. (16,213) (113,042) (80,537) (61,240) (69,623)
Change in notes payable to related parties........ 34,314 73,031 (24,261) (8,049) (2,502)
Cash distributions to stockholders................ (57,343) (99,474) (128,633) (94,181) (398,192)
Change in due from stockholders................... 837 (44,099) (8,927) (40,126) 191,165
--------- --------- --------- -------- ---------
Net cash used in financing activities....... (24) (129,013) (61,439) (160,615) (82,723)
--------- --------- --------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (63,639) 16,557 12,723 21,180 71,129
CASH AND CASH EQUIVALENTS, beginning
of period......................................... 79,003 15,364 31,921 31,921 44,644
--------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period............ $ 15,364 $ 31,921 $ 44,644 $ 53,101 $ 115,773
========= ========= ========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid..................................... $ 97,062 $ 169,227 $ 141,324 $122,591 $ 131,963
========= ========= ========= ======== =========
Taxes paid........................................ $ -- $ 66 $ 41,476 $ 41,476 $ 66,939
========= ========= ========= ======== =========
Noncash transactions:
Repurchase of common stock through issuance of a
note payable.................................... $ -- $ 25,000 $ -- $ -- $ --
========= ========= ========= ======== =========
Purchase of property and equipment through capital
leases.......................................... $ 45,975 $ -- $ -- $ -- $ --
========= ========= ========= ======== =========
</TABLE>

The accompanying notes to combined financial statements
are an integral part of these statements.

F-81
<PAGE> 132

THE BLETHEN GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization --

The Blethen Group's (the "Company") primary business purpose is to provide
temporary personnel services. The Company's administrative headquarters are in
Burlington, North Carolina, and as of September 29, 1996, the Company operated
staffing offices in Burlington, Henderson, Durham, West End, Research Triangle
Park and Winston-Salem, North Carolina.

The accompanying combined financial statements include the accounts of the
following separate entities which comprise the Company:

<TABLE>
<CAPTION>
FORM OF
DATE OF CORPORATION
INCORPORATION FOR INCOME
ENTITY IN NORTH CAROLINA TAX PURPOSES SERVICE TYPE
------ ----------------- ------------ ------------
<S> <C> <C> <C>
Blethen Temporaries,
Inc.................... October 6, 1981 S Corporation Clerical and light industrial
Dixon Enterprises of
Burlington, Inc........ February 7, 1992 C Corporation Clerical and light industrial
DP Pros of Burlington,
Inc.................... June 6, 1985 C Corporation Information technology and
clinical
Personnel Placement,
Inc.................... October 6, 1981 C Corporation Direct placement
TRASEC Corp.............. February 7, 1992 C Corporation Clerical and light industrial
Jaeger Personnel
Services, Ltd.......... December 20, 1985 S Corporation Clerical and light industrial
</TABLE>

Basis of Presentation --

The accompanying financial statements are presented on a combined basis as
the entities comprising the Company are under common ownership and/or common
management. Furthermore, Blethen Temporaries, Inc. has an option to purchase all
outstanding shares of common stock of Dixon Enterprises of Burlington, Inc. and
TRASEC Corp. for an amount not to exceed $5,000. All significant intercompany
transactions have been eliminated.

Fiscal Periods --

The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
year 1993 refers to the year ended January 2, 1994, fiscal year 1994 refers to
the year ended January 1, 1995, and fiscal year 1995 refers to the year ended
December 31, 1995. The fiscal years 1993, 1994 and 1995 each included 52 weeks.
The unaudited 1995 and audited 1996 interim periods end on the Sunday closest to
the end of the interim period. Each of the interim periods included in the
accompanying combined financial statements included 39 weeks.

Interim Financial Statements --

The accompanying interim combined financial statements and related
disclosures for the nine months ended October 1, 1995, have not been audited by
independent accountants. However, the combined financial statements for all
interim periods have been prepared in conformity with the accounting principles
stated in the audited combined financial statements for the three years in the
period ended December 31, 1995, and include all adjustments of a normal
recurring nature which, in the opinion of management, are necessary to present
fairly the financial position of the Company and the combined results of
operations and cash flows for each of the periods presented. The operating
results for the interim periods presented are not necessarily indicative of
results for the full year.

F-82
<PAGE> 133

THE BLETHEN GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition --

Service revenues and direct placement fee revenues are recognized as income
at the time staffing services are provided or the permanent employee is placed
with the customer.

In addition to the services described above, the Company, through a
Licensing Agreement (see Note 6), employs and pays individuals to perform
services for the licensees' customers, invoices customers, maintains
professional liability insurance and supports the training, office
administration, systems and marketing needs of the licensee. All revenues
generated by the licensee, therefore, belong to the Company and are included in
the Company's revenues and expenses. The Company is primarily liable for
operating expenses.

Use of Estimates --

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying combined financial statements are based
upon management's evaluation of the relevant facts and circumstances as of the
date of the combined financial statements. Actual results may differ from the
estimates and assumptions used in preparing the accompanying combined financial
statements.

Cash and Cash Equivalents --

Accounts Receivable --

The Company provides, if necessary, allowances for potential losses which
management believes are adequate to absorb losses to be incurred in realizing
the amounts recorded in the accompanying combined financial statements.
Management believes all accounts are collectible and accordingly, has not
recorded an allowance as of January 1, 1995, December 31, 1995, and September
29, 1996. Included in accounts receivable in the accompanying combined balance
sheets are unbilled amounts of $143,515, $149,665 and $449,040 at January 1,
1995, December 31, 1995, and September 29, 1996, respectively. All unbilled
amounts are normally billable in the following month.

Credit risk with respect to accounts receivable is dispersed due to the
nature of the business, the large number of customers and the diversity of
industries serviced.

Property and Equipment --

Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the assets
which are as follows:

<TABLE>
<S> <C>
Office equipment............................................ 5 to 7 years
Computer equipment and software............................. 5 years
Vehicles.................................................... 5 years
Leasehold improvements...................................... 5 to 15 years
</TABLE>

F-83
<PAGE> 134

THE BLETHEN GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Fair Value of Financial Instruments --

The Company's financial instruments include cash, related party notes
payable, due from stockholders and their debt obligations. Management believes
that these instruments bear interest at rates which approximate prevailing
market rates for instruments with similar characteristics, and accordingly, that
the carrying values for these instruments are reasonable estimates of fair
value.

Income Taxes --

Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under this new statement, deferred income taxes are provided based on the
estimated future tax effects of differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
adoption of SFAS 109 did not have a material effect on the Company's financial
position or results of operations.

Blethen Temporaries, Inc. and Jaeger Personnel Services, Ltd. have elected
to be taxed as S Corporations for federal and state income tax reporting
purposes. Accordingly, no income tax expense (benefit) has been recorded in the
accompanying combined financial statements related to these entities as such
taxes are liabilities of the respective stockholders. These entities' tax
returns are subject to examination by federal and state taxing authorities. If
such examinations result in a change to their reported income or loss, the
taxable income or loss reported by the respective stockholders could also
change.

Reclassifications --

Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform with 1996 presentations.

2. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
<S> <C> <C> <C>
Office equipment............................... $421,890 $428,610 $444,556
Computer equipment and software................ 336,166 352,528 368,069
Vehicles....................................... 65,118 65,118 65,118
Leasehold improvements......................... 109,926 109,926 109,926
-------- -------- --------
933,100 956,182 987,669
Less accumulated depreciation and
amortization................................. 539,770 648,896 732,371
-------- -------- --------
$393,330 $307,286 $255,298
======== ======== ========
</TABLE>

F-84
<PAGE> 135

THE BLETHEN GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. DEBT:

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
<S> <C> <C> <C>
Note payable to Chase Auto Financial. Principal
and interest payable monthly. Interest
payable at a fixed rate of 7.75%. Secured by
a vehicle. .................................. $35,172 $28,514 $24,291
Unsecured note payable to NationsBank of North
Carolina, N.A. Interest payable monthly at a
variable rate which ranged from 9.25% to
10.00% and averaged 9.83% during 1995.
Principal was repaid in 1995. ............... 15,900 -- --
Unsecured note payable to NationsBank of North
Carolina, N.A. Principal and interest are
payable in monthly installments of $320.
Interest rate is variable and ranged from
9.25% to 9.5% and averaged 9.29% during the
first nine months of 1996. .................. 9,873 6,559 3,444
------- ------- -------
60,945 35,073 27,735
Less current maturities........................ 25,341 10,151 10,678
------- ------- -------
$35,604 $24,922 $17,057
======= ======= =======
</TABLE>

The Company has two revolving lines of credit with Lighthouse Financial
Corp. that allow for maximum borrowings equal to the lesser of $800,000 and
$750,000 or 85% of the applicable Company's eligible accounts receivable, as
defined. Interest is payable monthly at a variable rate which ranged from 10.75%
to 11.00% and averaged 10.78% during the nine months ended September 29, 1996.
The lines of credit are renewed annually and are currently due April 6, 1997.
They are secured by the assets of the Company and guaranteed by the majority
stockholder. Principal and interest on the lines of credit are repaid by
collection of accounts receivable under a lockbox arrangement. Accordingly, such
lines are classified as current liabilities. At September 29, 1996,
approximately $9,800 of cash held by the Company was subject to this
arrangement. Under the terms of both lines of credit, the Company is required to
maintain certain financial ratios, including working capital in excess of
$125,000 and monthly positive cash flow among other things. As of September 29,
1996, the Company did not comply with certain of these ratios, as well as
certain other negative covenants. However, Lighthouse Financial Corp. has waived
all events of noncompliance and default through June 30, 1997.

Balances outstanding under these lines were $764,645, $971,436 and
$1,175,203 as of January 1, 1995, December 31, 1995, and September 29, 1996,
respectively.

F-85
<PAGE> 136

THE BLETHEN GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Annual maturities of debt were as follows:

<TABLE>
<CAPTION>
YEAR ENDING
----------------------------
DECEMBER 31, SEPTEMBER 29,
------------ -------------
<S> <C> <C>
1996........................................................ $ 981,587 $ --
1997........................................................ 10,262 1,185,881
1998........................................................ 7,773 7,963
1999........................................................ 6,887 8,027
2000........................................................ -- 1,067
---------- ----------
$1,006,509 $1,202,938
========== ==========
</TABLE>

4. INCOME TAXES:

Provision (benefit) for income taxes consisted of the following components:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ---------------------------
----------------------------- OCTOBER 1, SEPTEMBER 29,
1993 1994 1995 1995 1996
--------- ------- ------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current --
Federal......................... $ -- $19,102 $69,160 $58,500 $27,695
State........................... -- -- 14,000 14,000 7,000
--------- ------- ------- ------- -------
-- 19,102 83,160 72,500 34,695
--------- ------- ------- ------- -------
Deferred --
Federal......................... (109,263) 23,898 (1,660) (1,200) 34,060
State........................... (27,000) 6,000 (500) (300) 8,000
--------- ------- ------- ------- -------
(136,263) 29,898 (2,160) (1,500) 42,060
--------- ------- ------- ------- -------
Total............................. $(136,263) $49,000 $81,000 $71,000 $76,755
========= ======= ======= ======= =======
</TABLE>

Provision (benefit) for income taxes differs from the amount computed by
applying the federal statutory tax rate to pretax income due to the following:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ---------------------------
----------------------------- OCTOBER 1, SEPTEMBER 29,
1993 1994 1995 1995 1996
--------- ------- ------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision (benefit) for income
taxes computed at the federal
statutory rate.................. $ (77,000) $64,000 $98,000 $81,000 $ 164,000
State taxes, net of federal tax
benefit......................... (12,000) 10,000 15,000 12,000 25,000
Effect of permanent differences... 1,000 2,000 3,000 3,000 3,000
(Income) of S Corporations not
subject to taxation............. (43,000) (19,000) (32,000) (16,000) (113,000)
Other............................. (5,263) (8,000) (3,000) (9,000) (2,245)
--------- ------- ------- ------- ---------
Provision (benefit) for income
taxes........................... $(136,263) $49,000 $81,000 $71,000 $ 76,755
========= ======= ======= ======= =========
</TABLE>

F-86
<PAGE> 137

THE BLETHEN GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the impact of "temporary differences" between
the financial and tax basis of assets and liabilities. The temporary differences
which gave rise to deferred tax assets and (liabilities) are as follows:

<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
<S> <C> <C> <C>
Current --
Employee advances treated as compensation.............. $ (1,000) $ -- $ --
Workers' compensation accrual.......................... 4,000 4,000 11,000
Vacation accrual....................................... 2,000 3,000 5,000
Other.................................................. 500 4,000 --
-------- -------- --------
5,500 11,000 16,000
-------- -------- --------
Long term --
NOLs................................................... 78,000 42,000 1,000
Accelerated depreciation for tax purposes.............. (30,000) (26,000) (28,800)
Alternative minimum tax and other credits.............. 13,000 4,000 1,500
Change in income tax accounting method................. (37,000) -- --
Other.................................................. 100 760 --
-------- -------- --------
24,100 20,760 (26,300)
-------- -------- --------
Net deferred tax asset (liability)....................... $ 29,600 $ 31,760 $(10,300)
======== ======== ========
</TABLE>

The NOL carryforward at September 29, 1996, was approximately $16,000.
Utilization of this carryforward may be limited as a result of the potential
change in ownership that would result in the event of the intended merger
subsequent to year-end (see Note 8). However, management believes that the
deferred tax asset related to the NOL carryforward is fully realizable, and
therefore no valuation allowance has been recorded.

5. RELATED PARTY TRANSACTIONS:

Notes Payable to Related Parties --

The Company had an informal note payable to a member of its Board of
Directors and relative of the majority stockholder which was paid in full in the
nine-month period ended September 29, 1996. The note was payable in monthly
installments of $711. The note bore interest at an annually adjustable rate
equal to the six month average rate of two year treasury notes (approximately 6%
at September 29, 1996). The outstanding balances as of January 1, 1995, and
December 31, 1995, were $68,694 and $49,038. Interest expense related to these
notes amounted to approximately $6,000, $5,000 and $3,000 during fiscal years
1993, 1994 and 1995, respectively, and $2,200 during the unaudited nine-month
period ended October 1, 1995, and $3,000 during the nine-month period ended
September 29, 1996.

The Company had a note payable to a former stockholder which originated
through the Company's purchase of the former stockholder's equity interest in DP
Pros of Burlington, Inc. The note did not bear interest and was due in equal
quarterly installments of $4,000. The note was fully repaid in 1995. The
outstanding balance as of January 1, 1995, was $8,000.

The Company has two unsecured notes payable to stockholders, which bear
interest at variable rates ranging between 9.25% and 9.50%. Both notes are due
on demand and aggregate outstanding balances as of January 1, 1995, December 31,
1995, and September 29, 1996, were $52,337, $59,046 and $105,582, respectively.
Interest expense related to these notes amounted to $5,000 and $6,000 during
fiscal years 1994 and 1995, respectively, and $4,500 and $6,000 during the
unaudited nine-month period ended October 1, 1995, and the nine-month period
ended September 29, 1996, respectively.

F-87
<PAGE> 138

THE BLETHEN GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Stockholder Transactions --

The Company leases office space and a vehicle from the majority stockholder
at a monthly cost of $1,200 per month. Market rental rates may differ from these
rental payments. Rental expense under the above agreements totaled $14,400 for
each of the fiscal years 1993, 1994 and 1995 and $10,800 and $15,000 for the
unaudited nine-month period ended October 1, 1995, and for the nine-month period
ended September 29, 1996, respectively.

Due from stockholders primarily represents advances to the majority
stockholder.

The Company rents its Henderson, North Carolina, office facilities from a
stockholder under a month-to-month agreement. Rental expense related to these
facilities was $17,500, $19,000 and $24,000 during the fiscal years 1993, 1994
and 1995, respectively, and $18,000 during the unaudited nine-month period ended
October 1, 1995, and $20,700 during the nine-month period ended September 29,
1996.

During 1991 the Company entered into a three year noncompete agreement with
a related party. Pursuant thereto, the individual agreed not to compete, as
defined, with the Company for the term of the agreement, expiring in January
1994, in exchange for $150,000 payable in weekly installments of $962.

6. COMMITMENTS AND CONTINGENCIES:

Distributions to Stockholders --

Blethen Temporaries, Inc. and Jaeger Personnel Services, Ltd. pay dividends
to their stockholders in amounts sufficient to cover, among other things, their
estimated tax payments attributable to each entity's net income which will be
included in their individual tax returns.

Licensing Agreement --

During 1995, the Company entered into an agreement whereby it granted a
license to a third party to open and maintain a branch in West End, North
Carolina, for the purpose of providing temporary personnel services in that
market for an indefinite term. The Company also thereby granted the nonexclusive
right to utilize the Company's trade secrets, methods and know-how. The Company
receives 40% of gross margin, as defined, as payment for management services.
The balance of such gross margin is paid to the licensee. Amounts expensed under
the agreement amounted to $36,516 during fiscal year 1995 and $80,290 during the
nine-month period ended September 29, 1996. Such expense is included in selling,
general and administrative expenses in the accompanying combined statements of
income (loss).

Capital Lease Obligations --

The Company previously leased certain assets (primarily office equipment)
under capital leases. All capital lease obligations were paid in full during the
nine-month period ended September 29, 1996.

7. NONCANCELABLE OPERATING LEASES:

The Company leases office space and a vehicle under noncancelable operating
lease agreements. As discussed in Note 5, some of these agreements are with
related parties. Future minimum payments required

F-88
<PAGE> 139

THE BLETHEN GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

under operating leases that have an initial or remaining noncancelable lease
term in excess of one year are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
-----------------------------
DECEMBER 31, SEPTEMBER 29,
------------ -------------
<S> <C> <C>
1996....................................................... $ 93,395 $ --
1997....................................................... 86,317 102,324
1998....................................................... 88,140 104,136
1999....................................................... 33,932 64,950
2000....................................................... -- 3,393
-------- --------
$301,784 $274,803
======== ========
</TABLE>

Rental expense totaled $95,208, $155,230 and $157,121 for fiscal years
1993, 1994 and 1995, respectively, and $113,086 and $111,379 for the unaudited
nine-month period ended October 1, 1995, and the nine-month period ended
September 29, 1996, respectively.

8. BUSINESS COMBINATION:

In June 1996, certain of the stockholders of the Company, entered into a
definitive agreement to merge the Company with StaffMark, Inc. ("StaffMark") in
conjunction with StaffMark's anticipated initial public offering. Additionally,
effective October 2, 1996, StaffMark completed the initial public offering. In
conjunction with this merger, the majority stockholder will enter into an
employment agreement which provides for a base salary, participation in future
incentive bonus plans and certain other benefits. The agreement also includes a
noncompete provision if and when the stockholder's employment is terminated. The
Company advanced $31,250 to StaffMark to fund organizational and other costs
related to the planned merger and StaffMark's initial public offering.

Prior to and coincident with this merger, the Company made a cash
distribution to the majority stockholder representing the Company's subchapter S
Corporation Accumulated Adjustment Account. The balance of the Company's
subchapter S Corporation Accumulated Adjustment Account at September 29, 1996,
was $0.

Coincident with the above mentioned business combination on October 2,
1996, all outstanding debt related to the Lighthouse Financial Corp. line of
credit totaling $1,406,964 (principal and accrued interest at October 2) was
extinguished.

9. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):

F-89
<PAGE> 140

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders
Flexible Personnel Group of Companies:

We have audited the accompanying combined balance sheet of Flexible
Personnel Group of Companies (the Company) as of December 31, 1996, and the
related combined statements of income, changes in stockholders' equity and cash
flows for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Flexible
Personnel Group of Companies as of December 31, 1996, and the combined results
of its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.

As discussed in Note 1 to the combined financial statements, the Company
changed the entities included in the combined financial statements during 1996.

Fort Wayne, Indiana
February 4, 1997 except
for Note 3 for which the
date is February 24, 1997
and Note 7 for which
the date is March 17, 1997.

F-90
<PAGE> 141

FLEXIBLE PERSONNEL GROUP OF COMPANIES

COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash...................................................... $ 117
Accounts receivable, trade, net of allowance for doubtful
accounts of $69........................................ 3,869
Accounts receivable, related parties...................... 26
Notes receivable, related parties......................... 502
Other..................................................... 403
------
Total current assets.............................. 4,917
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................... 267
Office equipment.......................................... 1,252
Automobiles............................................... 113
------
1,632
Less accumulated depreciation and amortization......... 864
------
768
NOTES RECEIVABLE, RELATED PARTIES........................... 47
OTHER ASSETS................................................ 242
------
Total assets...................................... $5,974
======

LIABILITIES

CURRENT LIABILITIES:
Accrued expenses.......................................... $1,376
Accounts payable, trade................................... 70
Accounts payable, related parties......................... 1
Notes payable............................................. 867
------
Total current liabilities......................... 2,314
WORKERS COMPENSATION PAYABLE.............................. 520
NOTES PAYABLE............................................. 206

STOCKHOLDERS' EQUITY

Common stock................................................ 8
Additional paid-in capital.................................. 914
Retained earnings........................................... 2,928
------
3,850
Less notes receivable from stockholders..................... 644
Less treasury stock, 71 shares, at cost..................... 272
------
2,934
------
Total liabilities and stockholders' equity........ $5,974
======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-91
<PAGE> 142

FLEXIBLE PERSONNEL GROUP OF COMPANIES

COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(ALL DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<S> <C>
SERVICE REVENUES............................................ $49,342
COST OF SERVICES............................................ 39,928
-------
Gross profit.............................................. 9,414
OPERATING EXPENSES:
Selling, general and administrative....................... 8,085
Depreciation and amortization............................. 316
-------
Operating income....................................... 1,013
INTEREST EXPENSE............................................ 121
-------
Net income........................................ $ 892
=======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-92
<PAGE> 143

FLEXIBLE PERSONNEL GROUP OF COMPANIES

COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK, $0 PAR
--------------------------- NOTES
$10 PER $0 PER ADDITIONAL RECEIVABLE
SHARE SHARE PAID-IN RETAINED FROM TREASURY
STATED VALUE STATED VALUE CAPITAL EARNINGS STOCKHOLDERS STOCK TOTAL
------------ ------------ ---------- -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $ 7 $ 1 $744 $2,153 $(707) -- $ 2,198
Distributions paid................. -- -- -- (117) -- -- (117)
Acquisition of stock into
treasury........................ -- -- -- -- -- $(272) (272)
Shareholder advances forgiven...... -- -- -- -- 63 -- 63
Capital contribution............... -- -- 170 -- -- -- 170
Net income......................... -- -- -- 892 -- -- 892
--- --- ---- ------ ----- ----- -------
BALANCE, December 31, 1996........... $ 7 $ 1 $914 $2,928 $(644) $(272) $ 2,934
=== === ==== ====== ===== ===== =======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-93
<PAGE> 144

FLEXIBLE PERSONNEL GROUP OF COMPANIES

COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(ALL DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 892
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 316
Non-cash write-off of notes receivable, stockholder.... 63
Changes in assets and liabilities:
Accounts receivable, trade........................... (335)
Accounts receivable, related parties................. (19)
Other assets......................................... (395)
Accrued expenses..................................... 450
Accounts payable, trade.............................. 65
Accounts payable, related parties.................... (43)
-------
Net cash provided by operating activities......... 994
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (204)
Issuance of notes receivable, related parties............. (28)
Issuance of notes receivable, stockholders................ (760)
Principal payments received from notes receivable, related
parties................................................ 402
-------
Net cash used for investing activities............ (590)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable....................... (4,034)
Proceeds from notes payable............................... 3,617
Capital contribution...................................... 170
Distributions paid........................................ (117)
-------
Net cash used for financing activities............ (364)
-------
NET INCREASE IN CASH........................................ 40
CASH, beginning of year..................................... 77
-------
CASH, end of year........................................... $ 117
=======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-94
<PAGE> 145

FLEXIBLE PERSONNEL GROUP OF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS)

1. COMPANY BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Combination --

The combined financial statements of Flexible Personnel Group of Companies
(the Company) include the accounts of Flexible Personnel, Inc. (FPI) H.R.
America, Inc. (HRA) and Great Lakes Search Associates, Inc. (GLSA), all of which
are under common ownership. The Company offers temporary, direct, and employee
leasing services to customers mainly in the midwestern portion of the United
States. The December 31, 1995 financial statement information was restated to
reflect exclusion of National On-Site Personnel, Inc. (NOPS), which had
previously been combined with the aforementioned entities. This entity has been
excluded as the nature of its business focus differs from that of the Companies
included. All significant intercompany accounts and transactions have been
eliminated in the combined financial statements.

Depreciation and Amortization --

Depreciation of equipment and amortization of leasehold improvements are
determined principally on accelerated methods used for income tax reporting
purposes. The amount of depreciation and amortization under these methods is not
significantly different than that based on the estimated economic useful lives
for financial reporting purposes. Costs and related accumulated depreciation are
removed from the accounts for assets retired or disposed of and a gain or loss
on disposition is recorded when realized.

Cash Flows --

Cash paid for interest approximated $130 for 1996.

Estimates --

Revenue Recognition --

Service revenues are recognized as income at the time staffing services are
provided.

2. INCOME TAXES:

No provision is made for federal or state income taxes in as much as the
Company's stockholders have consented to have the Companies' income taxed
directly to them as provided by Section 1362(a) of the Internal Revenue Code.

3. NOTES PAYABLE:

During 1996, the Company maintained a short-term revolving line of credit
with a commercial bank which aggregated $4,600 (including a $605 letter of
credit). The agreement, which expires May 31, 1997, requires quarterly interest
payments charged at 2.25% above the 30, 60, or 90 day LIBOR for comparable 30,
60, or 90 day periods (effective rate of 7.75%). The total amount borrowed
against the agreement was $1,245 at December 31, 1996. The Company was
contingently liable for $444 at December 31, 1996, which was

F-95
<PAGE> 146

FLEXIBLE PERSONNEL GROUP OF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

borrowed by NOPS, an affiliated company. The additional amount available at
December 31, 1996 was $2,750.

The agreement is collateralized by substantially all the trade accounts
receivable of FPI of $3,366 and NOPS of $1,148, at December 31, 1996. The
agreement also contains certain restrictive covenants common to such agreements
related to the Company's operations, including the maintenance of working
capital, net worth, limitations on capital expenditures, limitations on
stockholder distributions and incurrence of additional indebtedness. Subsequent
to December 31, 1996, the Company received a waiver for loan covenant violations
that occurred during the year ended December 31, 1996.

During 1996, a key employee and minority shareholder's employment was
terminated with the Company. Under the terms of the termination agreement, the
Company agreed to buy back the employee's shares of stock and forgive
approximately $63 of shareholder advances that the minority shareholder owed to
the Company. The former shareholder also signed a non-compete agreement in the
amount of $157 that will be paid out over the term of the agreement (four
years). In total, based on the terms of the termination agreement, including the
items discussed above, the Company is required to pay approximately $293 in
monthly principal and interest installments of approximately $7 for a period of
four years.

Notes payable at December 31 consisted of the following:

<TABLE>
<S> <C>
Line of credit.............................................. $ 801
8.25% note to former shareholder due in monthly principal
and interest payments of approximately $7 through August
1, 2001................................................... 272
------
1,073
Less current maturities................................... 867
------
$ 206
======
</TABLE>

Aggregate maturities of debt in the ensuing four years are $867, $72, $78
and $56, respectively.

4. COMMON STOCK:

The components of Common Stock at December 31 are as follows:

<TABLE>
<S> <C>
Common stock, no par value, $10 per share stated value,
1,000 shares authorized; 677.9 shares issued; 623.6 shares
outstanding............................................... $ 7
Common stock, no par value, no stated value, 2,000 shares
authorized; 49 shares issued and outstanding.............. 1
Common stock, no par value, $1 per share stated value, 1,000
shares authorized; 100 shares issued and outstanding...... --
---
$ 8
===
</TABLE>

5. NOTES RECEIVABLE, RELATED PARTIES:

Notes receivable from related parties consisted of the following at
December 31:

<TABLE>
<S> <C>
9% notes from certain franchises of Flexible Personnel,
Inc., principal and interest due in 1997.................. $ 47
8.50% demand notes from shareholders........................ 644
8.50% demand notes from shareholders to be repaid in 1997... 502
</TABLE>

F-96
<PAGE> 147

FLEXIBLE PERSONNEL GROUP OF COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6. LEASE COMMITMENTS:

The Company has several noncancelable operating lease agreements for
buildings where their operations are located. Certain of these lease agreements
contain renewal options. Rent expense under these leases approximated $607 in
1996. Minimum annual rental payments due under these leases during the remaining
lease terms approximate the following:

7. SUBSEQUENT EVENT:

On March 17, 1997, the Company was sold and these financial statements
reflect the entities which were sold to StaffMark, Inc.

F-97
<PAGE> 148

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Global Dynamics, Inc.:

We have audited the accompanying balance sheet of Global Dynamics, Inc. (a
Delaware corporation) as of December 31, 1996, and the related statements of
operations, changes in shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Dynamics, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California,

March 27, 1997.

F-98
<PAGE> 149

GLOBAL DYNAMICS, INC.

BALANCE SHEET
DECEMBER 31, 1996

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash...................................................... $ 281,905
Accounts receivable, trade, net allowance for
uncollectible accounts of $41,217...................... 135,953
Unbilled receivables, trade............................... 2,968,224
Note receivable........................................... 20,145
Employee advances......................................... 67,400
Other assets.............................................. 20,614
----------
Total current assets.............................. 3,494,241
FURNITURE, FIXTURES AND EQUIPMENT, at cost, less
accumulated depreciation of $193,926................... 156,340
----------
Total assets...................................... $3,650,581
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued employee compensation and benefits and other
related costs.......................................... $ 957,528
Accounts payable, trade................................... 98,571
Deferred rent............................................. 22,442
Income taxes payable...................................... 38,916
Current portion of notes payable.......................... 22,387
Current portion of capital lease obligation............... 10,431
----------
Total current liabilities......................... 1,150,275
NOTES PAYABLE............................................... 403,303
CAPITAL LEASE OBLIGATIONS................................... 3,778
----------
Total liabilities................................. 1,557,356
----------
SHAREHOLDERS' EQUITY:
Common stock, 10,000 shares authorized;
633 shares issued and outstanding; $.01 par value...... 6
Additional paid-in capital................................ 1,377
Retained earnings......................................... 2,091,842
----------
Total shareholders' equity........................ 2,093,225
----------
Total liabilities and shareholders' equity........ $3,650,581
==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-99
<PAGE> 150

GLOBAL DYNAMICS, INC.

STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
SERVICE REVENUES............................................ $17,160,076
COST OF SERVICES............................................ 12,109,316
-----------
Gross Profit.............................................. 5,050,760
OPERATING EXPENSES:
Selling, general and administrative....................... 3,726,263
Depreciation.............................................. 43,873
-----------
Operating Income.................................. 1,280,624
INTEREST EXPENSE............................................ 52,380
-----------
Income before state income tax.................... 1,228,244
STATE INCOME TAX............................................ 22,000
-----------
Net income........................................ $ 1,206,244
===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-100
<PAGE> 151

GLOBAL DYNAMICS, INC.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995....................... $6 $1,377 $ 989,220 $ 990,603
Distributions.................................. -- -- (103,622) (103,622)
Net income..................................... -- -- 1,206,244 1,206,244
-- ------ ---------- ----------
BALANCE, December 31, 1996....................... $6 $1,377 $2,091,842 $2,093,225
== ====== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-101
<PAGE> 152

GLOBAL DYNAMICS, INC.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,206,244
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 43,873
Decrease in accounts receivable........................ 645,767
Increase in unbilled receivables....................... (1,301,550)
Decrease in employee advances.......................... 35,728
Increase in other assets............................... (3,999)
Increase in accrued employee compensation and benefits
and other related costs............................... 27,366
Decrease in accounts payable, trade.................... (191,395)
Decrease in deferred rent.............................. (2,041)
Increase in income taxes payable....................... 17,700
-----------
Total adjustments................................. (728,551)
-----------
Net cash provided by operating activities......... 477,693
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and furnishings.................... (58,345)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes receivable.......................................... (20,145)
Distribution to shareholder............................... (103,622)
Principal payment on notes payable........................ (12,379)
Principal payment under capital lease..................... (13,674)
-----------
Cash used in financing activities................. (149,820)
-----------
NET INCREASE IN CASH........................................ 269,528
CASH, beginning of the year................................. 12,377
-----------
CASH, end of the year....................................... $ 281,905
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
The Company made state income tax payments of $2,588 and
interest payments of $5,500 during 1996
</TABLE>

The accompanying notes are an integral part of these statements.

F-102
<PAGE> 153

GLOBAL DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. ORGANIZATION:

Global Dynamics, Inc. (the "Company"), a Delaware corporation, is an
information technology consulting firm established for the purpose of providing
skilled computer professionals to clients requiring permanent and temporary
technical resources. The Company provides contract personnel, contract-to-hire,
direct placement, payrolling and foreign recruiting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates --

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities. The estimates and assumptions
used in preparing the accompanying financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. However, actual results could differ from those
estimates.

Equipment and Furnishings --

Equipment and furnishings are stated at cost less accumulated depreciation.
Depreciation of equipment and furnishings is provided using the straight-line
method over estimated useful lives of five to seven years.

Revenue Recognition --

Temporary services revenues are recognized when the services are rendered
by the Company's temporary employees. Permanent placement revenues are
recognized when employment candidates accept offers of permanent employment.
Services performed during the year but not invoiced are recorded as "Unbilled
receivables, trade" on the balance sheet.

Income Taxes --

As an S Corporation, the Company is generally not subject to federal income
taxes, but rather its net income and losses are passed through directly to its
shareholders for inclusion in their taxable income or loss. Effective March 1,
1997, the Company became a C Corporation.

State taxes are recorded by the Company using the liability method.

3. COMMITMENTS AND CONTINGENCIES:

The Company leases office space under a noncancelable lease. Rent expense
for office space for the year ended December 31, 1996, was $144,862. At December
31, 1996, minimum future lease payments under noncancelable office space lease
agreements are as follows:

<TABLE>
<CAPTION>
YEAR ENDING LEASE
DECEMBER 31 COMMITMENTS
----------- -----------
<S> <C>
1997...................................................... $146,902
1998...................................................... 148,942
1999...................................................... 150,982
2000...................................................... 75,491
2001 and thereafter....................................... --
--------
Total............................................. $522,317
========
</TABLE>

F-103
<PAGE> 154

GLOBAL DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company has a capital lease obligation for equipment that expires in
June 1998. Payments on the obligation were $11,820 for the year ended December
31, 1996. Future minimum lease payments for the obligation are as follows:

<TABLE>
<S> <C>
1997........................................................ $10,431
1998........................................................ 3,778
-------
Total............................................. $14,209
=======
</TABLE>

4. FURNITURE, FIXTURES AND EQUIPMENT:

A summary of furniture, fixtures and equipment at December 31, 1996, is as
follows:

<TABLE>
<S> <C>
Furniture and fixtures...................................... $ 41,560
Equipment................................................... 70,887
Computer equipment.......................................... 237,819
---------
Total furniture, fixtures and equipment, at
cost............................................ 350,266
Less: Accumulated depreciation.............................. (193,926)
---------
Total net furniture, fixtures and equipment....... $ 156,340
=========
</TABLE>

5. RELATED-PARTY TRANSACTIONS:

At December 31, 1996, the Company held a note receivable of $20,145 from a
permanent employee. The note, which is secured by the assets of the employee,
bears an annual rate of 10.5% and is to be repaid in 1997.

During 1996, the Company advanced salaries to certain permanent employees
and shareholders. The balance to be repaid from 1997 salaries was $67,400 at
December 31, 1996.

6. LINE OF CREDIT:

The Company has access to a line of credit with a credit facility that
provides up to $1,000,000, which is available to fund the Company's general
business and working capital needs, and a second line of credit that provides up
to $100,000, which is available to fund purchases of equipment for the Company.
The lines of credit are secured by the assets of the Company and guaranteed by
the shareholders. At December 31, 1996, the Company had no outstanding borrowing
against either of these lines of credit. Interest expense related to these lines
of credit during the year ended December 31, 1996, was $3,927.

7. NOTES PAYABLE:

At December 31, 1996, the Company had a promissory note payable with an
original balance of $40,000. This note, which bears an annual rate of 11.35
percent, is due on July 28, 2000. At December 31, 1996, the unpaid balance on
this note was $31,607. During the year ended December 31, 1996, interest of
$4,059 was expensed.

During 1995, the Company entered into an agreement to purchase shares of
the Company from previous employees. In exchange for the shares, the Company
issued promissory notes payable to the previous employees for an aggregate
amount of $400,000, bearing an annual interest rate of 8.5%. The remaining
balance is payable on December 15, 2005, or upon the sale and transfer of 100%
of the stock in the Company, whichever occurs first. Interest expense related to
the notes for the year ended December 31, 1996, was $14,083.

F-104
<PAGE> 155

GLOBAL DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Future principal payments for all notes payable are as follows:

<TABLE>
<S> <C> <C>
1997............................................................. $ 23,082
1998............................................................. 24,417
1999............................................................. 25,865
2000............................................................. 27,052
2001 and thereafter.............................................. 325,274
--------
Total.................................................. $425,690
========
</TABLE>

8. EMPLOYEE BENEFIT PLANS:

The Company offers a 401(k) plan to eligible employees, as defined in the
Plan Document.

The Company matches employee contributions up to a specified amount.
Company contributions for the year ended December 31, 1996, was $11,980.

9. SUBSEQUENT EVENTS:

On March 7, 1997, the Company signed a letter of intent to sell 100% of the
outstanding shares of the Company to an unaffiliated company. If the sale is
consummated, the effective date will be April 1, 1997.

F-105
<PAGE> 156
INSIDE BACK

The Inside Back Cover Page of the Prospectus contains a corporate profile
description and a summary description of the Company's three divisions:
Commercial Staffing; Professional/Information Technology; and Specialty
Medical. Each summary contains a photo relating to the division.

<PAGE> 157

======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Capitalization........................ 11
Price Range of Common Stock and
Dividend Policy..................... 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 21
Management............................ 30
Principal and Selling Stockholders.... 38
Description of Capital Stock.......... 40
Certain Transactions.................. 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 48
Additional Information................ 49
Index to Financial Statements......... F-1
</TABLE>

======================================================
======================================================
3,500,000 SHARES

[STAFFMARK, INC. LOGO]
COMMON STOCK
---------------------

PROSPECTUS
---------------------
LOGOS

, 1997
======================================================
<PAGE> 158

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table itemizes the expenses of this Offering to be incurred
by the Company in connection with this registration statement. All the amounts
shown are estimates except the SEC registration fee, the NASD filing fee and the
Nasdaq National Market Application Listing Fee.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 197
Nasdaq National Market Listing Fee.......................... 17,500
NASD Filing Fee............................................. 10,965
Blue Sky Fees and Expenses.................................. 10,000
Accounting Fees and Expenses................................ 225,000
Legal Fees and Expenses..................................... 375,000
Printing and Engraving Costs................................ 200,000
Transfer Agent Fees and Expenses............................ 5,000
Miscellaneous............................................... 1,156,338
----------
Total............................................. $2,000,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Bylaws provide that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.

Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that the directors, officers, employee or
agents acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.

The Company's Certificate of Incorporation provides that the Company's
directors will not be personally liable to the Company or its stockholders for
monetary damages resulting from breaches of their fiduciary duty as directors
except (a) for any breach of the duty of loyalty to the Company or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 174 of
the General Corporation Law of the State of Delaware, which makes directors
liable for unlawful dividends or unlawful stock repurchases or redemptions or
(d) for transactions from which directors derive improper personal benefit.

In accordance with Delaware law, the Company has entered into
indemnification agreements with its directors, pursuant to which it will agree
to pay certain expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement incurred by such directors in connection with certain
actions, suits or proceedings. These agreements require directors to repay the
amount of any expenses advanced if it shall be determined that they shall not
have been entitled to indemnification.

II-1
<PAGE> 159

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:

(i) In March 1996, the Company issued 1,000 shares of Common Stock to
the original founding stockholders of the Company for $.01 per share and
subsequently declared a 1,355-for-1 stock dividend in June 1996; and

(ii) Simultaneously with the completion of the Initial Public
Offering, the Company issued 5,618,249 shares of its Common Stock in
connection with the Mergers of the six Founding Companies. See "Certain
Transactions";

(iii) In connection with the acquisition of The Technology Source,
LLC, the Company issued 118,763 shares of Common Stock to the Technology
Source members in January 1997;

(iv) In connection with the acquisition of Flexible Personnel, Inc.,
the Company issued 183,824 shares of Common Stock to the Flexible Personnel
stockholders in March 1997;

(v) In connection with the acquisition of Global Dynamics, Inc., the
Company issued 690,855 shares of Common Stock to the Global Dynamics
stockholders in April 1997;

(vi) In connection with the acquisition of The Kleven Group, the
Company issued 23,263 shares of Common Stock to the Kleven Group
stockholders in June 1997;

(vii) In connection with the acquisition of Sterling Enterprises, the
Company issued 193,860 shares of Common Stock to the Sterling Enterprise
stockholders in June 1997;

(viii) In connection with the acquisition of Baker Street Group, Inc.,
the Company issued 286,162 shares of Common Stock to the Baker Street Group
stockholders in July, 1997; and

(ix) In connection with the acquisition of Expert Business Systems,
Incorporated, the Company issued 123,500 shares of Common Stock to certain
of the Expert Business Systems stockholders.

Each of these transactions was completed without registration of the
respective securities under the Securities Act in reliance upon the exemptions
provided by Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder on the basis that such transactions did not involve a
public offering. The purchasers were sophisticated with access to the kind of
information registration would provide and such purchasers acquired such
securities without a view toward the distribution thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

II-2
<PAGE> 160
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.3 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark, Maxwell/Healthcare
Acquisition Corp., Square One Rehab Acquisition Corp.,
Maxwell Staffing of Bristow Acquisition Corp., Maxwell
Staffing, Inc., Technical Staffing, Inc. and the
Stockholders named therein. (Incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-7513)).
2.4 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark., HRA Acquisition Corp.,
HRA, and the Stockholders named therein. (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
2.5 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark, First Choice Staffing
Acquisition Corp., First Choice, and the Stockholders
named therein. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-7513)).
2.6 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark, DP Pros of Burlington
Acquisition Corp., Blethen Temporaries Acquisition Corp.,
Personnel Placement Acquisition Corp., Jaeger Personnel
Services Acquisition Corp., Dixon Enterprises of
Burlington Acquisition Corp., Trasec Acquisition Corp.,
DP Pros of Burlington, Inc., Blethen Temporaries, Inc.,
Personnel Placement, Inc., Jaeger Personnel Services,
Ltd., Dixon Enterprises of Burlington, Inc., Trasec
Corp., and the Stockholders named therein. (Incorporated
by reference from the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
2.7 -- Asset Purchase Agreement, dated as of November 29, 1996,
among StaffMark, The Technology Source Acquisition
Corporation, and Technology Source. (Incorporated by
reference from Exhibit 2.1 to the Company's Current
Report on Form 8-K filed with the SEC on December 16,
1996).
2.8 -- Asset Purchase Agreement, dated as of March 17, 1997,
among StaffMark, StaffMark Acquisition Corporation Two,
StaffMark Acquisition Corporation Three, and Flexible
Personnel, Great Lakes Search Associates, Inc., H.R.
America, Inc., Douglas H. Curtis, Jean A. Curtis and
Robert P. Curtis. (Incorporated by reference from Exhibit
2.1 to the Company's Current Report on Form 8-K filed
with the SEC on April 2, 1997, as amended on May 30,
1997).
2.9 -- Agreement and Plan of Reorganization, dated April 4,
1997, among StaffMark, StaffMark Acquisition Corporation
Four, and Global, Perry Butler, trustee of the Perry
Butler Charitable Remainder Trust, Carolyn J. Butler,
trustee of the Carolyn J. Butler Charitable Remainder
Trust, Perry Butler, individually, Carolyn J. Butler,
individually, and Paul Sharps, individually.
(Incorporated by reference from Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the SEC
on April 24, 1997, as amended on June 6, 1997).
2.10 -- Asset Purchase Agreement, dated April 24, 1997, among
StaffMark, StaffMark Acquisition Corporation Five, and
Lindenberg, Earl Lindenberg, and Mark Tiemann.
(Incorporated by reference from Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the SEC
on April 25, 1997).
3.1 -- Certificate of Incorporation of the Company.
(Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
</TABLE>

II-3
<PAGE> 161

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.2 -- Certificate of amendment of Certificate of Incorporation.
(Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
3.3 -- Amended and Restated Bylaws of the Company, as amended to
date. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
4.1 -- Form of certificate evidencing ownership of Common Stock
of the Company. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-7513)).
5.1 -- Opinion of Wright, Lindsey & Jennings regarding legality.
10.1 -- StaffMark, Inc. 1996 Stock Option Plan. (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
10.2 -- Form of Director Indemnification Agreement. (Incorporated
by reference from the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
10.3 -- Employment Agreement between StaffMark and Terry C.
Bellora. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
10.4 -- Employment Agreement among StaffMark, Brewer and Clete T.
Brewer. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.5 -- Employment Agreement among StaffMark, Brewer and Jerry T.
Brewer. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.6 -- Employment Agreement among StaffMark, Prostaff and Steven
E. Schulte. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.7 -- Employment Agreement among StaffMark, Maxwell and John H.
Maxwell, Jr. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.8 -- Employment Agreement among StaffMark, Maxwell and Mary
Sue Maxwell. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.9 -- Employment Agreement among StaffMark, HRA and W. David
Bartholomew. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.10 -- Employment Agreement among StaffMark, HRA and Ted
Feldman. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.11 -- Employment Agreement among StaffMark, First Choice and
William T. Gregory. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.12 -- Employment Agreement among StaffMark, DP Pros of
Burlington, Inc. and Janice Blethen. (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-15059)).
</TABLE>

II-4
<PAGE> 162

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.13 -- Credit Agreement dated October 4, 1996 in the amount of
$50,000,000 by and between StaffMark, the Lenders named
therein ("Lender") and Mercantile Bank of St. Louis
National Association, as Agent on behalf of the Lenders.
(Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.14 -- First Amendment to the Credit Agreement dated December
18, 1996 among the Registrant and the Lenders named
therein. (Incorporated by reference from the Company's
Annual Report on Form 10-K filed with the SEC on March
17, 1997, as amended by Form 10-K/A filed with the SEC on
March 24, 1997).
10.15 -- Second Amendment to the Credit Agreement dated May 30,
1997 among StaffMark and the Lenders named herein.
(Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997,
filed with the SEC on July 28, 1997).
10.16 -- Lock-Up and Registration Rights Agreement dated September
20, 1996 among StaffMark, Jerry T. Brewer, Clete T.
Brewer, Chad J. Brewer, Donald A. Marr, Jr., Robert H.
Janes III, John C. Becker, Betty Becker, Donna F. Vassil,
Janice Blethen and Capstone Partners, L.L.C. ("Lock-Up
and Registration Rights Agreement"). (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-15059)).
10.17 -- Lease Agreement among Brewer and Brewer Investments for
the StaffMark Corporate offices located at 302 East
Millsap Road, City of Fayetteville, County of Washington,
State of Arkansas. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.18 -- Lease Agreement among Maxwell Staffing, Inc. and Maxwell
Properties, L.L.C. for the Company's offices located at
8221 East 63rd Place, Tulsa, Oklahoma. (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-15059)).
10.19 -- Lease Agreement among Maxwell/Healthcare, Inc. and
Maxwell Properties L.L.C. for the Company's offices
located at 8211-8213 East 65th Street, Tulsa, Oklahoma.
(Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.20 -- The Company's Employee Stock Purchase Plan adopted May 2,
1997. (Incorporated by reference from the Company's
Registration Statement on Form S-8 (File No. 333-29689)).
10.21 -- Form of Second Amendment to Agreement and Plan of
Reorganization for Founding Companies.*
10.22 -- Form of First Amendment to Lock-Up and Registration
Rights Agreement.*
10.23 -- Employment Agreement among StaffMark and Gordon Y.
Allison. (Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, filed with the SEC on July 28, 1997).
21.1 -- List of subsidiaries of StaffMark, Inc.
23.1 -- Consent of Wright, Lindsey & Jennings (contained in
Exhibit 5.1 hereto).
23.2 -- Consents of Arthur Andersen LLP, Independent Public
Accountants.
</TABLE>

II-5
<PAGE> 163

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.3 -- Consent of Coopers & Lybrand, L.L.P., Independent Public
Accountants.
24.1 -- Power of Attorney (included with the signature page
hereof).*
27.1 -- Financial Data Schedule (Incorporated by reference from
the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1997 and the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.)
</TABLE>

* Previously filed.

(b) Financial Statement Schedules

All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the financial statements and the related
notes thereto.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-6
<PAGE> 164

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Fayetteville, State of Arkansas, as of August 6, 1997.

STAFFMARK, INC.

By: /s/ CLETE T. BREWER

----------------------------------
Clete T. Brewer
President and Chief Executive
Officer

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Clete T.
Brewer, Terry C. Bellora and Gordon Y. Allison, and each of them, as his true
and lawful attorney-in-fact and agent, with full power of substitution, to sign
on his or her behalf individually and in the capacity stated below and to
perform any acts necessary to be done in order to file all amendments and
post-effective amendments to this Registration Statement, and any and all
instruments or documents filed as part of or in connection with this
Registration Statement or the amendments thereto and each of the undersigned
does hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.

<TABLE>
<CAPTION>
NAME TITLE PAGE
---- ----- ----
<C> <S> <C>
/s/ CLETE T. BREWER President, Chief Executive August 6, 1997
- ----------------------------------------------------- Officer and Director
Clete T. Brewer (Principal Executive Officer)

/s/ TERRY C. BELLORA Chief Financial Officer August 6, 1997
- ----------------------------------------------------- (Principal Financial and
Terry C. Bellora Accounting Officer)

/s/ JERRY T. BREWER* Chairman of the Board August 6, 1997
- -----------------------------------------------------
Jerry T. Brewer

/s/ W. DAVID BARTHOLOMEW* Executive Vice President -- August 6, 1997
- ----------------------------------------------------- Southeastern Operations and
W. David Bartholomew Director

/s/ STEVEN E. SCHULTE* Executive Vice President -- August 6, 1997
- ----------------------------------------------------- Administration and Director
Steven E. Schulte

/s/ JOHN H. MAXWELL, JR.* Executive Vice President -- August 6, 1997
- ----------------------------------------------------- Medical Services and Director
John H. Maxwell, Jr.

/s/ JANICE BLETHEN* Executive Vice President -- August 6, 1997
- ----------------------------------------------------- Clinical Trials Support
Janice Blethen Services and Director

/s/ WILLIAM T. GREGORY* Vice President and General August 6, 1997
- ----------------------------------------------------- Manager -- Carolina Region
William T. Gregory and Director

/s/ WILLIAM J. LYNCH* Director August 6, 1997
- -----------------------------------------------------
William J. Lynch

/s/ R. CLAYTON MCWHORTER* Director August 6, 1997
- -----------------------------------------------------
R. Clayton McWhorter

/s/ CHARLES A. SANDERS* Director August 6, 1997
- -----------------------------------------------------
Charles A. Sanders

*By: /s/ CLETE T. BREWER
---------------------------------------
Clete T. Brewer, As Attorney-In-Fact
pursuant to power of attorney contained
in the Company's Registration Statement
on Form S-1 (No. 333-32371) as filed on
July 30, 1997.
</TABLE>

II-7
<PAGE> 165

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark, Brewer Personnel
Services Acquisition Corp., Brewer and the Stockholders
named therein. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-7513)).
2.2 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark, Prostaff Personnel
Acquisition Corp., Prostaff, Excel Temporary Staffing
Acquisition Corp., Professional Resources, Inc., and the
Stockholders named therein. (Incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-7513)).
2.3 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark, Maxwell/Healthcare
Acquisition Corp., Square One Rehab Acquisition Corp.,
Maxwell Staffing of Bristow Acquisition Corp., Maxwell
Staffing, Inc., Technical Staffing, Inc. and the
Stockholders named therein. (Incorporated by reference
from the Company's Registration Statement on Form S-1
(File No. 333-7513)).
2.4 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark., HRA Acquisition Corp.,
HRA, and the Stockholders named therein. (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
2.5 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark, First Choice Staffing
Acquisition Corp., First Choice, and the Stockholders
named therein. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-7513)).
2.6 -- Agreement and Plan of Reorganization, dated as of June
17, 1996, by and among StaffMark, DP Pros of Burlington
Acquisition Corp., Blethen Temporaries Acquisition Corp.,
Personnel Placement Acquisition Corp., Jaeger Personnel
Services Acquisition Corp., Dixon Enterprises of
Burlington Acquisition Corp., Trasec Acquisition Corp.,
DP Pros of Burlington, Inc., Blethen Temporaries, Inc.,
Personnel Placement, Inc., Jaeger Personnel Services,
Ltd., Dixon Enterprises of Burlington, Inc., Trasec
Corp., and the Stockholders named therein. (Incorporated
by reference from the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
2.7 -- Asset Purchase Agreement, dated as of November 29, 1996,
among StaffMark, The Technology Source Acquisition
Corporation, and Technology Source. (Incorporated by
reference from Exhibit 2.1 to the Company's Current
Report on Form 8-K filed with the SEC on December 16,
1996).
2.8 -- Asset Purchase Agreement, dated as of March 17, 1997,
among StaffMark, StaffMark Acquisition Corporation Two,
StaffMark Acquisition Corporation Three, and Flexible
Personnel, Great Lakes Search Associates, Inc., H.R.
America, Inc., Douglas H. Curtis, Jean A. Curtis and
Robert P. Curtis. (Incorporated by reference from Exhibit
2.1 to the Company's Current Report on Form 8-K filed
with the SEC on April 2, 1997, as amended on May 30,
1997).
</TABLE>

<PAGE> 166

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.9 -- Agreement and Plan of Reorganization, dated April 4,
1997, among StaffMark, StaffMark Acquisition Corporation
Four, and Global, Perry Butler, trustee of the Perry
Butler Charitable Remainder Trust, Carolyn J. Butler,
trustee of the Carolyn J. Butler Charitable Remainder
Trust, Perry Butler, individually, Carolyn J. Butler,
individually, and Paul Sharps, individually.
(Incorporated by reference from Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the SEC
on April 24, 1997, as amended on June 6, 1997).
2.10 -- Asset Purchase Agreement, dated April 24, 1997, among
StaffMark, StaffMark Acquisition Corporation Five, and
Lindenberg, Earl Lindenberg, and Mark Tiemann.
(Incorporated by reference from Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the SEC
on April 25, 1997).
3.1 -- Certificate of Incorporation of the Company.
(Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
3.2 -- Certificate of amendment of Certificate of Incorporation.
(Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
3.3 -- Amended and Restated Bylaws of the Company, as amended to
date. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
4.1 -- Form of certificate evidencing ownership of Common Stock
of the Company. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-7513)).
5.1 -- Opinion of Wright, Lindsey & Jennings regarding legality.
10.1 -- StaffMark, Inc. 1996 Stock Option Plan. (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
10.2 -- Form of Director Indemnification Agreement. (Incorporated
by reference from the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
10.3 -- Employment Agreement between StaffMark and Terry C.
Bellora. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
10.4 -- Employment Agreement among StaffMark, Brewer and Clete T.
Brewer. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.5 -- Employment Agreement among StaffMark, Brewer and Jerry T.
Brewer. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.6 -- Employment Agreement among StaffMark, Prostaff and Steven
E. Schulte. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.7 -- Employment Agreement among StaffMark, Maxwell and John H.
Maxwell, Jr. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.8 -- Employment Agreement among StaffMark, Maxwell and Mary
Sue Maxwell. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
</TABLE>

<PAGE> 167

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.9 -- Employment Agreement among StaffMark, HRA and W. David
Bartholomew. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.10 -- Employment Agreement among StaffMark, HRA and Ted
Feldman. (Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.11 -- Employment Agreement among StaffMark, First Choice and
William T. Gregory. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.12 -- Employment Agreement among StaffMark, DP Pros of
Burlington, Inc. and Janice Blethen. (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-15059)).
10.13 -- Credit Agreement dated October 4, 1996 in the amount of
$50,000,000 by and between StaffMark, the Lenders named
therein ("Lender") and Mercantile Bank of St. Louis
National Association, as Agent on behalf of the Lenders.
(Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.14 -- First Amendment to the Credit Agreement dated December
18, 1996 among the Registrant and the Lenders named
therein. (Incorporated by reference from the Company's
Annual Report on Form 10-K filed with the SEC on March
17, 1997, as amended by Form 10-K/A filed with the SEC on
March 24, 1997).
10.15 -- Second Amendment to the Credit Agreement dated May 30,
1997 among StaffMark and the Lenders named herein.
(Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997,
filed with the SEC on July 28, 1997).
10.16 -- Lock-Up and Registration Rights Agreement dated September
20, 1996 among StaffMark, Jerry T. Brewer, Clete T.
Brewer, Chad J. Brewer, Donald A. Marr, Jr., Robert H.
Janes III, John C. Becker, Betty Becker, Donna F. Vassil,
Janice Blethen and Capstone Partners, L.L.C. ("Lock-Up
and Registration Rights Agreement"). (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-15059)).
10.17 -- Lease Agreement among Brewer and Brewer Investments for
the StaffMark Corporate offices located at 302 East
Millsap Road, City of Fayetteville, County of Washington,
State of Arkansas. (Incorporated by reference from the
Company's Registration Statement on Form S-1 (File No.
333-15059)).
10.18 -- Lease Agreement among Maxwell Staffing, Inc. and Maxwell
Properties, L.L.C. for the Company's offices located at
8221 East 63rd Place, Tulsa, Oklahoma. (Incorporated by
reference from the Company's Registration Statement on
Form S-1 (File No. 333-15059)).
10.19 -- Lease Agreement among Maxwell/Healthcare, Inc. and
Maxwell Properties L.L.C. for the Company's offices
located at 8211-8213 East 65th Street, Tulsa, Oklahoma.
(Incorporated by reference from the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.20 -- The Company's Employee Stock Purchase Plan adopted May 2,
1997. (Incorporated by reference from the Company's
Registration Statement on Form S-8 (File No. 333-29689)).
10.21 -- Form of Second Amendment to Agreement and Plan of
Reorganization for Founding Companies.*
</TABLE>

<PAGE> 168

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22 -- Form of First Amendment to Lock-Up and Registration
Rights Agreement.*
10.23 -- Employment Agreement among StaffMark and Gordon Y.
Allison. (Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, filed with the SEC on July 28, 1997).
21.1 -- List of subsidiaries of StaffMark, Inc.
23.1 -- Consent of Wright, Lindsey & Jennings (contained in
Exhibit 5.1 hereto).
23.2 -- Consents of Arthur Andersen LLP, Independent Public
Accountants.
23.3 -- Consent of Coopers & Lybrand, L.L.P., Independent Public
Accountants.
24.1 -- Power of Attorney (included with the signature page
hereof).*
27.1 -- Financial Data Schedule (Incorporated by reference from
the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1997 and the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.)
</TABLE>

- ---------------

* Previously filed.

<PAGE> 1
EXHIBIT 1.1

STAFFMARK, INC.

3,500,000 SHARES OF COMMON STOCK

UNDERWRITING AGREEMENT

August ___, 1997

J.C. BRADFORD & CO.
MONTGOMERY SECURITIES
STEPHENS INC.
As Representatives of the several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201

Ladies and Gentlemen:

StaffMark, Inc., a Delaware corporation (the "Company"),
proposes to sell to the several underwriters named in Schedule I hereto (the
"Underwriters") for whom you are acting as the representatives (the
"Representatives") with respect to the sale by the Company of 3,215,000 shares
(the "Company Shares") of the Company's common stock, par value $0.01 per share
(the "Common Stock"), and the stockholders of the Company named in Schedule II
hereto (the "Selling Stockholders") propose to sell to the Underwriters 285,000
shares of the Common Stock (the "Selling Stockholder Shares"). The Company
Shares and the Selling Stockholder Shares are hereinafter referred to
collectively as the "Firm Shares." The Company has also agreed to grant to you
an option (the "Option") to purchase up to a total of 525,000 additional shares
of Common Stock (the "Option Shares") on the terms and for the purposes set
forth in Section 1(b) hereof. The Firm Shares and the Option Shares are
hereinafter collectively referred to as the "Shares."

The Company and the Selling Stockholders confirm as follows
their agreements with you.

1. AGREEMENT TO SELL AND PURCHASE; PUBLIC OFFERING.

(a) On the basis of the representations, warranties and
covenants herein contained, and subject to all the terms and conditions of this
Agreement, the Company agrees to sell to the Underwriters an aggregate of
3,215,000 Firm Shares, and each of the Selling Stockholders agrees, severally
and not jointly, to sell to the Underwriters the aggregate number of Firm
Shares set forth opposite such Selling Stockholder's name in Schedule II
hereto, and each of the Underwriters, severally and not jointly, agrees to
purchase at the purchase price of $_______ per share, the number of Firm Shares
set forth opposite such Underwriter's name in Schedule I hereto.
<PAGE> 2
(b) Subject to all the terms and conditions of this
Agreement, the Company also grants the Underwriters an Option to purchase,
severally and not jointly, up to 525,000 Option Shares from the Company, each
at the same price per share as you shall pay for the Firm Shares. The Option
may be exercised only to cover over-allotments in the sale of the Firm Shares
and may be exercised in whole or in part at any time (but not more than once)
on or before the 30th day after the date of the Prospectus (as defined below)
upon written or telegraphic notice (the "Option Shares Notice") by you to the
Company no later than 12:00 noon, Nashville, Tennessee time at least two and no
more than 10 business days before the date and time specified for closing in
the Option Shares Notice (the "Option Closing Date") setting forth the
aggregate number of Option Shares to be purchased. On the Option Closing Date,
the Company will issue and sell to the Underwriters the number of Option Shares
set forth in the Option Shares Notice, and unless otherwise adjusted by the
Representatives, each of the Underwriters will purchase such percentage of the
Option Shares as is equal to the percentage of Firm Shares that such
Underwriter is purchasing.

(c) After the Registration Statement becomes effective,
upon the authorization by you of the release of the Shares, the several
Underwriters propose to offer the Firm Shares and the Option Shares purchased
by the Underwriters for sale initially at the price per share set forth in the
Prospectus (the initial offering price) and upon the terms set forth therein.

2. DELIVERY AND PAYMENT.

Delivery of the Firm Shares shall be made to you by or on
behalf of the Company and the Selling Stockholders against payment of the
purchase price by federal funds wire transfer payable in same day funds to the
order of the Company at the offices of J.C. Bradford & Co., J.C. Bradford
Financial Center, 330 Commerce Street, Nashville, Tennessee 37201, or at such
other place as may be agreed upon by the Representatives and the Company, at
10:00 a.m., Nashville time, on the third full business day following the date
of this Agreement (the "Closing Date"), or at such other time on such date, or
at such other place, as may be agreed upon by the Company and the
Representatives.

To the extent the Option is exercised, delivery of the Option
Shares against payment therefor (in the manner specified above) will take place
at the offices specified above at the Option Closing Date (which, subject to
the requirements set forth above for the Option Shares Notice, may be the
Closing Date).

Certificates evidencing the Shares shall be in definitive form
and shall be registered in such names and in such denominations as you shall
request not less than 48 hours prior to the Closing Date or the Option Closing
Date, as the case may be, by written notice to the Company. For the purpose of
expediting the checking and packaging of certificates for the Shares, the
Company agrees to make such certificates available for inspection at least 24
hours prior to the Closing Date or the Option Closing Date, as the case may be,
at a location to be designated by you, which may be in New York, New York, or
elsewhere.

The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Firm Shares and Option Shares by the
Company to the Underwriters shall be

2
<PAGE> 3
borne by the Company. The Company will pay and save each of the Underwriters
and any subsequent holder of the Shares harmless from any and all liabilities
with respect to or resulting from any failure or delay in paying federal and
state stamp and other transfer taxes, if any, which may be payable or
determined to be payable in connection with the original issuance or sale to
such Underwriter of the Firm Shares and Option Shares.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents, warrants and covenants to each of the
Underwriters that:

(a) The Company has prepared and has filed with the
Securities and Exchange Commission (the "Commission") a registration statement
(Registration No. 333-32371) on Form S-1 relating to the Shares, including a
preliminary prospectus and such amendments to such registration statement as
may have been required to the date of this Agreement, under the provisions of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (collectively referred to as the "Rules and Regulations") of the
Commission thereunder. The term "preliminary prospectus" as used herein means
a preliminary prospectus as contemplated by Rule 430 or Rule 430A of the Rules
and Regulations included at any time as part of the registration statement.
Copies of such registration statement and amendments and of each related
preliminary prospectus have been delivered to you. If such registration
statement has not become effective, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective, will be filed promptly by the
Company with the Commission. If such registration statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule
424(b) of the Rules and Regulations. The term "Registration Statement" means
the registration statement as amended at the time it becomes or became
effective (the "Effective Date"), including financial statements and all
exhibits and any information deemed to be included by Rule 430A. The term
"Prospectus" means the prospectus as first filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations or, if no such filing is required,
the form of final prospectus included in the Registration Statement at the
Effective Date.

(b) On the Effective Date, the date the Prospectus is
first filed with the Commission pursuant to Rule 424(b) (if required), at all
times subsequent thereto up to and including the Closing Date and, if later,
the Option Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did or will comply with all applicable
provisions of the Act and the Rules and Regulations and did or will contain all
statements required to be stated therein in accordance with the Act and the
Rules and Regulations. On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement, the Prospectus or any such amendment or supplement did
or will contain an untrue statement of a

3
<PAGE> 4
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading. At the
Effective Date, the date the Prospectus or any amendment or supplement to the
Prospectus is filed with the Commission and at the Closing Date and, if later,
the Option Closing Date, the Prospectus did not or will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties in this
Section 3(b) do not apply to any statements or omissions made in reliance on
and in conformity with information relating to the Underwriters furnished in
writing to the Company by the Representatives specifically for inclusion in the
Registration Statement or Prospectus or any amendment or supplement thereto.
The Company acknowledges that the statements set forth under the heading
"Underwriting" in the Prospectus constitute the only information relating to
the Underwriters furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement.

(c) The only active subsidiaries (as defined in the Rules
and Regulations) of the Company and all trade names or other fictitious names
used by the Company or such subsidiaries are as provided in Exhibit 21.1 of the
Registration Statement (individually, a "Subsidiary" and collectively, the
"Subsidiaries"). The Company and each of its Subsidiaries is, and at the
Closing Date will be, a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of their incorporation. The
Company and each of its Subsidiaries has, and at the Closing Date will have,
full power and authority to conduct all the activities conducted by it, to own
or lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company and
each Subsidiary is, and at the Closing Date will be, duly licensed or qualified
to do business and in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities conducted by it or the
character of the assets owned or leased by it makes such licensing or
qualification necessary. Except for the stock of the Subsidiaries or as
disclosed in the Registration Statement, the Company does not own, and at the
Closing Date will not own, directly or indirectly, any shares of stock or any
other equity or long-term debt securities of any corporation or have any equity
interest in any firm, partnership, joint venture, association or other entity.
Complete and correct copies of the Certificate of Incorporation and the Bylaws
of the Company and each Subsidiary and all amendments thereto have been
delivered to you, and no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.

(d) The outstanding shares of the Company's Common Stock
have been, and the Shares to be issued and sold by the Company upon such
issuance will be, duly authorized, validly issued, fully paid and nonassessable
and will not be subject to any preemptive or similar right. The description of
the Common Stock in the Registration Statement and the Prospectus is, and at
the Closing Date will be, complete and accurate in all respects. Except as set
forth in the Prospectus, the Company does not have outstanding, and at the
Closing Date will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell any shares of Common
Stock or any such warrants, convertible securities or obligations.

4
<PAGE> 5
(e) The financial statements and schedules included in
the Registration Statement or the Prospectus present fairly the consolidated
financial condition of the Company as of the respective dates thereof and the
consolidated results of operations and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire
period involved, except as otherwise disclosed in the Prospectus. The
financial and statistical data set forth in the Prospectus under the captions
"Prospectus Summary," "Summary Financial Data," "Use of Proceeds,"
"Capitalization," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business,"
"Management" and "Principal and Selling Stockholders" and the financial
statements contained in the Prospectus fairly present the information set forth
therein on the basis stated in the Prospectus. No other financial statements
or schedules of the Company are required by the Act, the Exchange Act (as
hereinafter defined) or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Arthur Andersen LLP (the
"Accountants"), who have reported on such financial statements and schedules,
are independent auditors with respect to the Company as required by the Act and
the Rules and Regulations.

(f) The Company's system of internal accounting controls
taken as a whole is sufficient to meet the broad objectives of internal
accounting control insofar as those objectives pertain to the prevention or
detection of errors or irregularities in amounts that would be material in
relation to the Company's financial statements; and, except as disclosed in the
Prospectus, neither the Company nor any employee or agent of the Company has
made any payment of funds of the Company or received or retained any funds in
violation of any law, rule or regulation, the receipt or payment of which could
have a material adverse effect on the Company.

(g) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date, except as set forth in the Registration Statement and the
Prospectus, (i) there has not been and will not have been any material adverse
change in the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company, arising for any reason
whatsoever, (ii) the Company has not incurred nor will it incur any material
liabilities or obligations, direct or contingent, except in the ordinary course
of business, (iii) the Company has not and will not have paid or declared any
dividends or other distributions of any kind on any class of its capital stock,
and (iv) there has not been and will not have been any change in the
capitalization of the Company other than pursuant to the exercise of employee
stock options.

(h) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act
of 1940, as amended.

(i) Except as set forth in the Registration Statement and
the Prospectus, there are no actions, suits or proceedings pending or
threatened against or affecting the Company or any Subsidiary or any of
respective officers in their capacity as such, before or by any federal or
state court, commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially and

5
<PAGE> 6
adversely affect the Company or its Subsidiaries or its business, properties,
business prospects, condition (financial or otherwise) or results of operations
or prevent or materially hinder the consummation of this Agreement.

(j) The Company and each Subsidiary has, and at the
Closing Date will have, (i) all governmental licenses, permits, consents,
orders, approvals and other authorizations necessary to carry on its business
as contemplated in the Prospectus, (ii) complied in all material respects with
all laws, regulations and orders applicable to it or its business and (iii)
performed all obligations required to be performed by it, and is not, and at
the Closing Date will not be, in default, under any contract or other
instrument material to it to which it is a party or by which its property is
bound or affected; the lack of which would materially and adversely affect the
Company or its Subsidiaries or its business, properties, business prospects,
condition (financial or otherwise) or results of operations or prevent or
materially hinder the consummation of this Agreement. To the best knowledge of
the Company and each Subsidiary, no other party under any contract or other
instrument to which it is a party is in default in any respect thereunder.
Neither the Company nor any Subsidiary is, nor at the Closing Date will any of
them be, in violation of any provision of its Certificate of Incorporation.

(k) No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency or body is
required for the consummation by the Company of the transactions on its part
herein contemplated, except such as have been obtained under the Act or the
Rules and Regulations and such as may be required under state securities or
Blue Sky laws or the bylaws and rules of the National Association of Securities
Dealers, Inc. (the "NASD") in connection with the purchase and distribution by
the Underwriters of the Shares.

(l) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company and is enforceable against the Company in accordance with the terms
hereof. The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation or imposition
of any material lien, charge or encumbrance upon any of the assets of the
Company or any Subsidiary pursuant to the terms or provisions of, or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, or give any other party a right to terminate any of its
obligations under, or result in the acceleration of any obligation under, the
Certificate of Incorporation or Bylaws of the Company or its Subsidiaries, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of its
or their properties are bound or affected, or violate or conflict with any
judgment, ruling, decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company or any Subsidiary; the occurrence of which would materially and
adversely affect the Company or its Subsidiaries or its business, properties,
business prospects, condition (financial or otherwise) or results of operations
or prevent or materially hinder the consummation of this Agreement.

6
<PAGE> 7
(m) The Company and each Subsidiary has good and
marketable title to all properties and assets described in the Prospectus as
owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Prospectus or are not
material to the business of the Company or its Subsidiaries. The Company and
each Subsidiary has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it, with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such properties by the Company and such Subsidiaries. The Company and
each Subsidiary owns or leases all such properties as are necessary to its
operations as now conducted.

(n) There is no document or contract of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not described or
filed as required. All such contracts to which the Company or any Subsidiary
is a party have been duly authorized, executed and delivered by the Company or
such Subsidiary constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against the Company or such Subsidiary in
accordance with the terms thereof, except where the lack of authorization,
execution, delivery or enforceability of any such contract would not materially
and adversely affect the Company or its Subsidiaries or its business,
properties, business prospects, condition (financial or otherwise) or results
of operations or prevent or materially hinder the consummation of this
Agreement.

(o) No statement, representation, warranty or covenant
made by the Company in this Agreement or made in any certificate or document
required by this Agreement to be delivered to you was or will be, when made,
inaccurate, untrue or incorrect in any material respect.

(p) Neither the Company nor any of its directors,
officers or controlling persons has taken, directly or indirectly, any action
designed, or which might reasonably be expected, to cause or result, under the
Act or otherwise, in, or which has constituted, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares or the Common Stock.

(q) No holder of securities of the Company has rights to
the registration of any securities of the Company because of the filing of the
Registration Statement, except as disclosed in the Prospectus.

(r) The Company has taken such action as necessary to
have the Shares authorized for trading and all of the Shares have been approved
for listing on the National Association of Securities Dealers Automated
Quotation National Market System (the "Nasdaq National Market").

(s) Other than as contemplated by this Agreement, there
is no broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a result of
any of the transactions contemplated by this Agreement.

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<PAGE> 8
(t) The Company has timely filed all required forms,
reports and other documents with the Commission all of which complied, when
filed, in all material respects, with all applicable requirements of the Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As
of their respective dates, such reports, forms and other documents (including
all exhibits and schedules thereto) and documents incorporated by reference
therein (the "Reports"), did not contain any untrue statement of a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
Company has delivered a complete copy of all such Reports to the
Representatives prior to the date of this Agreement. The financial statements
of the Company included or incorporated by reference in such Reports, forms and
other documents were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may otherwise be indicated in the notes thereto), and fairly present the
financial position of the Company as of the date thereof and the consolidated
results of its operations and consolidated changes in financial position for
the periods then ended (subject, in the case of any unaudited interim financial
statements, to year-end adjustments).

(u) The representations and warranties made by the
Company and its Subsidiaries in that certain Credit Agreement dated as of
October 4, 1996 by and between the Company, Mercantile Bank of St. Louis
National Association and the lenders party thereto, as amended (the "Credit
Agreement") were true, correct and complete when and as made and continue to be
true, correct and complete as of the date of this Agreement as if set forth in
their entirety herein. The Company is in compliance with all covenants of the
Company and is not in default or breach of any of the terms and provisions set
forth in the Credit Agreement and, after giving effect to the Offering, the
Company will continue to be in compliance with the covenants, terms and
provisions of the Credit Agreement.

4. REPRESENTATIONS AND WARRANTIES OF THE SELLING
STOCKHOLDERS.

Each of the Selling Stockholders, severally and not jointly,
represents, warrants and covenants to each Underwriter that:

(a) Such Selling Stockholder at the Closing Date will
have good and valid title to the Shares set forth in Schedule II to be sold by
such Selling Stockholder, free and clear of any liens, encumbrances, equities
and claims (other than as imposed by the Act or this Agreement), and full
right, power and authority to effect the sale and delivery of such Shares; and
upon the delivery of and payment for the Shares to be sold by such Selling
Stockholder pursuant to this Agreement, good and valid title thereto, free and
clear of any liens, encumbrances, equities and claims, will be transferred to
the Underwriters.

(b) Such Selling Stockholder has duly executed and
delivered the Selling Stockholders' Custody Agreement (the "Custody Agreement")
and the Selling Stockholders' Power of Attorney (the "Power of Attorney") in
the forms previously delivered to the Representatives, appointing Clete T.
Brewer, Terry C. Bellora and Gordon Y. Allison, and each of them as such
Selling Stockholder's attorney-in-fact (the "Attorney-in-Fact") and First
Chicago Trust Company of New York, as custodian (the "Custodian"). The
Attorney-in-Fact is

8
<PAGE> 9
authorized to execute, deliver and perform this Agreement on behalf of such
Selling Stockholder, to deliver the Shares to be sold by such Selling
Stockholder hereunder, to accept payment therefor and otherwise to act on
behalf of such Selling Stockholder in connection with this Agreement.
Certificates, in suitable form for transfer by delivery or accompanied by duly
executed instruments of transfer or assignment in blank, representing the
Shares to be sold by such Selling Stockholder hereunder have been deposited
with the Custodian pursuant to the Custody Agreement for the purpose of
delivery pursuant to this Agreement. Such Selling Stockholder agrees that the
shares of Common Stock represented by the certificates on deposit with the
Custodian are subject to the interest of the Underwriters hereunder, that the
arrangements made for such custody and the appointment of the Attorney-in-Fact
are to that extent irrevocable, and that the obligations of such Selling
Stockholder hereunder shall not be terminated except as provided in this
Agreement and the Custody Agreement. If such Selling Stockholder should die,
become disabled or be declared incompetent, dissolve or become insolvent, or if
any other event should occur before the delivery of the Shares of such Selling
Stockholder hereunder, the certificates for such Shares deposited with the
Custodian shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, disability, incompetency,
dissolution, insolvency or other event had not occurred, regardless of whether
or not the Custodian or the Attorney-in-Fact shall have received notice
thereof.

(c) Such Selling Stockholder, acting through its duly
authorized Attorney-in-Fact, has duly executed and delivered this Agreement,
the Custody Agreement and the Power of Attorney; this Agreement constitutes a
legal valid and binding obligation of such Selling Stockholder; all
authorizations and consents necessary for the execution and delivery of this
Agreement, the Custody Agreement and the Power of Attorney on behalf of such
Selling Stockholder and for the sale and delivery of the Shares to be sold by
such Selling Stockholder hereunder have been given, except as may be required
by the Act or state securities laws or the NASD; and such Selling Stockholder
has the legal capacity and full right, power and authority to execute this
Agreement, the Custody Agreement and the Power of Attorney.

(d) The performance of this Agreement, the Custody
Agreement and the Power of Attorney and the consummation of the transactions
contemplated hereby and thereby by each of the Selling Stockholders will not
result in a material breach or violation of, or material conflict with, any of
the terms or provisions of, or constitute a material default by such Selling
Stockholder under, any indenture, mortgage, deed of trust (constructive or
other), loan agreement, lease, franchise, license or other agreement or
instrument to which such Selling Stockholder or any of its properties is bound,
any statute, or any judgment, decree, order, rule or regulation or any court or
governmental agency or body applicable to such Selling Stockholder or any of
its properties.

(e) Such Selling Stockholder has not distributed and will
not distribute any prospectus or other offering material in connection with the
offer and sale of the Shares other than any preliminary prospectus prepared and
filed by the Company with the Commission or the Prospectus or other material
permitted by the Act.

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<PAGE> 10
(f) For a period of 180 days from the Effective Date of
the Registration Statement, such Selling Stockholder will not, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of any shares of Common Stock, other than to the Underwriters pursuant
to this Agreement, without the prior written consent of J.C. Bradford & Co.;
provided, however, that the undersigned may give or pledge any such securities
without the prior written consent of J.C. Bradford & Co. if the donee or
pledgee, as the case may be, agrees in writing prior to such gift or pledge to
be bound by the terms of this agreement and such writing is delivered to J.C.
Bradford & Co. within five days after said gift or pledge; and provided
further, that the "Other Founding Stockholders" and the "Stockholder
Affiliates" (as those terms are defined in the "Shares Eligible For Future
Sale" section of the Prospectus) may sell, subject to all applicable federal
and state securities laws, a limited portion of their shares of Common Stock
without the prior written consent of J.C. Bradford & Co. during the "Open
Period" (as defined in "Shares Eligible for Future Sale").

(g) Except to the knowledge of such Selling Stockholder,
the representations and warranties of the Company contained in Section 3 of
this Agreement are true and correct; such Selling Stockholder has reviewed and
is familiar with the Registration Statement as originally filed with the
Commission and the preliminary prospectus contained therein. To the knowledge
of such Selling Stockholder, the preliminary prospectus does not include an
untrue statement of a material fact, or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; other than as disclosed to the
Underwriters, such Selling Stockholder is not prompted to sell the Shares to be
sold by such Selling Stockholder by any information concerning the Company that
is not set forth in the preliminary prospectus or the Prospectus.

(h) To the extent that any statements or omissions made
in the Registration Statement, any preliminary prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling Stockholder
expressly for use therein, such Registration Statement, preliminary prospectus
and Prospectus and any amendments or supplements thereto did not and will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.

(i) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory body,
administrative or other governmental body is necessary in connection with the
execution and delivery of this Agreement by such Selling Stockholder, and the
consummation by it of the transaction herein contemplated (other than as
required by the Act, state securities laws and the NASD).

(j) Any certificates signed by or on behalf of such
Selling Stockholder as such and delivered to the Representatives or to counsel
for the Representatives shall be deemed a representation and warranty by such
Selling Stockholder to each Underwriter as to the matters covered thereby.

(k) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to

10
<PAGE> 11
the transactions herein contemplated such Selling Stockholder agrees to deliver
to you prior to or at the Closing Date a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).

(l) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or which might
constitute or reasonably be expected to constitute, stabilization or
manipulation of the price of the Common Stock.

5. COVENANTS OF THE COMPANY.

The Company covenants and agrees with each of the Underwriters
as follows:

(a) The Company will not, either prior to the Effective
Date or thereafter during such period as the Prospectus is required by law to
be delivered in connection with sales of the Shares by an underwriter or
dealer, file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to you within
a reasonable period of time prior to the filing thereof and you shall not have
objected thereto in good faith.

(b) The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify you promptly, and
will confirm such advice in writing, (i) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (iv) of the happening of
any event during the period mentioned in the second sentence of Section 5(e)
that in the judgment of the Company makes any statement made in the
Registration Statement or the Prospectus untrue or that requires the making of
any changes in the Registration Statement or the Prospectus in order to make
the statements therein, in light of the circumstances in which they are made,
not misleading, and (v) of receipt by the Company or any representatives or
attorney of the Company of any other communication from the Commission relating
to the Company, the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue any order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible moment. If the Company has omitted any information from the
Registration Statement pursuant to Rule 430A of the Rules and Regulations, the
Company will use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to said Rule 430A and to notify
the Representatives promptly of all such filings.

(c) The Company will furnish to you, without charge,
three signed copies of the Registration Statement and of any post-effective
amendment thereto, including financial statements and schedules, and all
exhibits thereto.

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<PAGE> 12
(d) The Company will comply with all the provisions of
any undertakings contained in the Registration Statement. The Company will,
from time to time, after the effective date of the Registration Statement file
with the Commission such reports as are required by the Act, the Exchange Act,
the rules and regulations thereunder (the "Exchange Act Rules and Regulations")
and the Rules and Regulations, and shall also file with state securities
commissions in states where the Shares have been sold by you (as you shall have
advised us in writing) such reports as are required to be filed by the
securities acts and the regulations of those states.

(e) On the Effective Date, and thereafter from time to
time until expiration of the period mentioned in the second sentence of this
Section 5(e), the Company will deliver to each of you, without charge, as many
copies of the Prospectus or any amendment or supplement thereto as you may
reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by you and by all dealers to whom the Shares
may be sold, both in connection with the offering or sale of the Shares and for
any period of time thereafter during which the Prospectus is required by law to
be delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or your counsel should be set
forth in the Prospectus in order to make any statement therein, in light of the
circumstances under which it was made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with law, the Company will
forthwith prepare and duly file with the Commission an appropriate supplement
or amendment thereto, and will deliver to each of you, without charge, such
number of copies thereof as you may reasonably request.

(f) Prior to any public offering of the Shares by you,
the Company will cooperate with you and your counsel in connection with the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you may request; provided,
that in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action which
would subject it to general service of process in any jurisdiction where it is
not now so subject.

(g) During the period of three years commencing on the
Effective Date, the Company will furnish to the Representatives copies of such
financial statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of any class of its
capital stock, and will furnish to you a copy of each annual or other report it
shall be required to file with the Commission promptly after such filing.
During such period, the Company will promptly notify you in writing if it
appears to the Company that it is likely that the Company will not in a timely
manner furnish to its stockholders an annual report containing audited
financial statements or a quarterly report for one of the first three quarters
of the fiscal year containing unaudited financial information.

(h) The Company will make generally available to holders
of its securities as soon as may be practicable but in no event later than the
last day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for a period of 12 months ended

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<PAGE> 13
commencing after the Effective Date, and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).

(i) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will
pay, or reimburse if paid by the Underwriters, all costs and expenses incident
to the performance of the obligations of the Company under this Agreement,
including but not limited to costs and expenses of or relating to (i) the
preparation, printing, and filing of the Registration Statement and exhibits to
it, each preliminary prospectus, the Prospectus and any amendment or supplement
to the Registration Statement or the Prospectus, (ii) the preparation and
delivery of certificates representing the Shares, (iii) the printing of this
Agreement and other underwriting documents, including Underwriter's
Questionnaires, Underwriter's Powers of Attorney, Blue Sky Memorandum, Master
Agreement Among Underwriters and Master Selected Dealer Agreements, (iv)
furnishing (including costs of shipping and mailing) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and all
amendments and supplements thereto, as may be requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold, (v) the quotation of the Shares on the Nasdaq National
Market, (vi) any filings required to be made by you with the NASD, and the
fees, disbursements and other charges of your counsel in connection therewith,
(vii) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions designated pursuant to
Section 5(f), including the fees, disbursements and other charges of your
counsel in connection therewith, and the preparation and printing of
preliminary, supplemental and final Blue Sky memoranda (subject to a maximum
fee of $10,000, assuming no unusual circumstances), and (ix) the transfer agent
for the Shares.

(j) If this Agreement shall be terminated by the Company
or if for any reason the Company shall be unable to perform its obligations
hereunder, the Company will reimburse you for all out-of-pocket expenses
(including the fees, disbursements and other charges of your counsel)
reasonably incurred by them in connection herewith. If this Agreement shall be
terminated by the Underwriters based upon an Act of God or other circumstances
not involving a matter within the control of the Company or any fault of the
Company, the Company shall have no obligation to reimburse you for any
out-of-pocket expenses.

(k) The Company will not at any time, directly or
indirectly, take any action designed, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
shares of Common Stock to facilitate the sale or resale of any of the Shares.

(l) The Company will apply the net proceeds from the
offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds."

(m) During the period of 180 days commencing at the
Closing Date, the Company will not, without your prior written consent, grant
options to purchase shares of Common Stock except under stock option plans
previously approved by the Company's

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<PAGE> 14
stockholders, and except at prices equal to or greater than "fair market
value", as defined in the Company's 1996 Stock Option Plan.

(n) The Company will not, and will cause each of its
executive officers, directors and each beneficial owner of one percent (1%) or
more of the outstanding shares of Common Stock (or options to acquire or become
the holder of one percent (1%) or more of the outstanding shares of Common
Stock) to enter into agreements with you to the effect that they will not, for
a period of 180 days after the commencement of the public offering of the
Shares, without your prior written consent (which shall not be unreasonably
withheld), sell, contract to sell or otherwise dispose of any shares of Common
Stock or rights to acquire such shares (other than pursuant to stock option
plans for employees or directors or in connection with other employee incentive
compensation arrangements and other than as otherwise set forth in such
agreements).

(o) If at any time during the 25 day period after the
Registration Statement is declared effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which, in your
opinion, the market price for the Shares has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising it as to the effect set forth above, prepare, consult
with you concerning the substance of and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or commenting
on such rumor, publication or event.

6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.

The respective obligations of the Underwriters to purchase and
pay for the Shares shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company herein as of the date hereof
and as of the Closing Date as if made on and as of the Closing Date, to the
accuracy of the statements of the Company's officers made pursuant to the
provisions hereof, to the performance by the Company of all of their covenants
and agreements hereunder and to the following additional conditions:

(a) Notification that the Registration Statement has
become effective shall be received by you not later than 5:30 p.m., Nashville,
Tennessee time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by you and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made.

(b) (i) No stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the
Commission or such authorities and to the satisfaction of the Representatives,
(iv) after the date hereof no

14
<PAGE> 15
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to you and you did
not object thereto in good faith, (v) the NASD, upon review of the terms of the
public offering of the Shares, shall not have objected to such offering, such
terms or the Underwriters' participation in the same, and (vi) and you shall
have received certificates, dated the Closing Date and the Option Closing Date
and signed by the Chief Executive Officer or the Chairman of the Board of
Directors of the Company and the Chief Financial Officer of the Company (who
may, as to proceedings threatened, rely upon the best of their information and
belief), to the effect of clauses (i), (ii) and (iii).

(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall not
have been a material adverse change, or any development involving a prospective
material adverse change, in the general affairs, business, business prospects,
properties, management, key personnel, condition (financial or otherwise) or
results of operations of the Company, whether or not arising from transactions
in the ordinary course of business, in each case other than as set forth in the
Registration Statement and the Prospectus (or, in the case of a prospective
change, other than as contemplated by the Registration Statement and the
Prospectus), and (ii) the Company shall not have sustained any material loss or
interference with its business or properties from fire, explosion, flood,
hurricane or other casualty or calamity, whether or not covered by insurance,
or from any labor dispute or any court or legislative or other governmental
action, order or decree, which is not set forth in the Registration Statement
and the Prospectus, if in your reasonable judgment any such development makes
it impracticable or inadvisable to consummate the sale and delivery of the
Shares by you at the public offering price.

(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been
no litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any federal,
state, or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would materially and adversely
affect the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.

(e) Each of the representations and warranties of the
Company contained herein shall be true and correct in all material respects at
the Closing Date and, with respect to the Option Shares, at the Option Closing
Date, as if made at the Closing Date and, with respect to the Option Shares, at
the Option Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date
and, with respect to the Option Shares, at or prior to the Option Closing Date,
shall have been duly performed, fulfilled or complied with.

(f) The Underwriters shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the Option
Closing Date, and satisfactory in form and substance to your counsel, from
Wright, Lindsey & Jennings, counsel to the Company, to the effect that:

15
<PAGE> 16
(i) The Company has been duly incorporated and is
an existing corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus. The Company is qualified to do business as a
foreign corporation in good standing in all other
jurisdictions, except when the failure to so qualify would
have a material adverse effect upon the Company.

(ii) Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the
laws of its state of incorporation or organization, as the
case may be; each Subsidiary has the corporate power and
authority to own its properties and conduct its business as
described in the Prospectus; and each Subsidiary is qualified
to do business as a foreign corporation in good standing in
all other jurisdictions, except when the failure to so qualify
would have a material adverse effect upon the Company and its
Subsidiaries taken as a whole.

(iii) As of the dates specified therein, the Company
had authorized and issued capital stock as set forth under the
caption "Capitalization" in the Prospectus. All the
outstanding shares of capital stock of each Subsidiary have
been duly and validly authorized and issued and are fully paid
and nonassessable. and except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of each of
the Subsidiaries (except directors' qualifying shares) are
owned by the Company free and clear of any perfected security
interest and any other security interests, claims, liens or
encumbrances.

(iv) The Shares delivered on such Closing Date have
been duly authorized, validly issued and are fully paid and
nonassessable, and conform to the description thereof
contained in the Prospectus.

(v) The outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained
in the Prospectus; and the stockholders of the Company have no
preemptive or similar rights with respect to the Shares or the
Common Stock. All offers and sales of the Company's
securities during the past three years were at all relevant
times duly registered or exempt from the registration
requirements of the Act and were duly registered or the
subject of an exemption from the registration requirements of
applicable state securities or Blue Sky laws.

(vi) Except as set forth in the Prospectus, there
are no contracts, agreements or understandings known to such
counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the
Company to include such securities in the securities
registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act.

16
<PAGE> 17
(vii) No consent, approval, authorization or order
of, or filing with, any governmental agency or body or any
court is required for the issuance or sale of the Shares or
the consummation of the other transactions contemplated by
this Agreement, except such as have been obtained and made
under the Act, the Exchange Act and such as may be required
under state securities or Blue Sky laws.

(viii) The execution, delivery and performance of
this Agreement and the consummation of the transactions herein
contemplated, including the issuance and sale of the Shares
and compliance with the provisions thereof, will not result in
a breach or violation of any of the terms or provisions of, or
constitute a default under, (A) any statute, rule, regulation
or, to the knowledge of such counsel, order of any
governmental agency or body or any court having jurisdiction
over the Company or the Subsidiaries or any of their
properties, or (B) any material obligation, agreement,
covenant or condition contained in any agreement or instrument
to the knowledge of such counsel to which the Company or the
Subsidiaries is a party or by which the Company or the
Subsidiaries is bound or to which any of the properties of the
Company or the Subsidiaries is subject, or (C) the Certificate
of Incorporation as amended, of the Company, or the Bylaws of
the Company or the Articles of Incorporation or Bylaws of the
Subsidiaries, and the Company has full power and authority to
authorize, issue and sell the Shares as contemplated by this
Agreement.

(ix) The Registration Statement was declared
effective under the Act as of the date and time specified in
such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was
included in the Registration Statement (as the case may be),
and, to the best of the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are
pending or contemplated under the Act; the Registration
Statement and the Prospectus, and each amendment or supplement
thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations (except
that such counsel need express no opinion as to financial
statements, schedules and other financial or statistical
information included therein); the descriptions in the
Registration Statement and Prospectus of statutes, legal and
governmental proceedings and contracts and other documents are
accurate in all material respects and fairly present the
information required to be shown; and such counsel does not
know of any statutes or regulations or any pending or
threatened legal or governmental proceedings, required to be
described in the Prospectus which are not described as
required nor of any contracts or documents of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement which are not described and filed as required; it
being understood that such counsel need express no opinion as
to the financial statements, schedules or other financial or
statistical data contained

17
<PAGE> 18
in the Registration Statement or the Prospectus or as to the
section of the Prospectus entitled "Underwriting."

(x) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid
and legally binding obligation of the Company enforceable in
accordance with its terms, except (A) as such enforceability
may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance or similar laws now or hereafter in
effect relating to creditors' rights or debtors' obligations
generally; (B) that the remedies of specific performance and
injunctive and other forms of relief are subject to general
equitable principles, whether enforcement is sought at law or
in equity, and that such enforcement may be subject to the
discretion of the court before which any proceedings therefor
may be brought; and (C) as rights to indemnity and
contribution may be limited by state or Federal laws relating
to securities or the policies underlying such laws.

Such opinion shall also contain a statement by counsel to the
effect that such counsel have no reason to believe that the Registration
Statement, or any amendment thereto, as of its effective date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, as of its issue
date, included any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statement of a material fact or
omitted to state any material fact necessary in order to make the statements,
in light of the circumstances under which they were made, not misleading.

In rendering such opinion, such counsel may rely as to matters
of fact, to the extent proper, on certificates of responsible officers of the
Company.

(g) The Underwriters shall have received an opinion,
dated the Closing Date and satisfactory in form and substance to your counsel,
from Wright, Lindsey & Jennings, counsel to the Selling Stockholders, to the
effect that:

(i) This Agreement, the Custody Agreement and the
Power of Attorney have been duly executed and delivered by or
on behalf of each of the Selling Stockholders and constitute
valid and binding agreements of such Selling Stockholders in
accordance with their terms, except as enforceability may be
limited by applicable equitable principles or by bankruptcy,
insolvency, moratorium, reorganization or similar laws from
time to time in effect affecting the enforcement of creditors'
rights and except that the enforceability of the rights to
indemnity and contribution contained herein may be limited by
federal or state laws and public policy underlying such laws.

(ii) To the knowledge of such counsel, the sale of
the Shares to be sold by each Selling Stockholder hereunder
and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Custody Agreement and the
Power of Attorney and the consummation of the transactions
herein and

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<PAGE> 19

therein contemplated will not conflict with or result in a
breach or violation of any terms or provisions of, or
constitute a default under any material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument
known to such counsel to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound or to
which any of the property or assets of such Selling
Stockholder is subject, or any statute, order, rule or
regulation of any court or governmental agency or body known
to such counsel to be applicable to such Selling Stockholder
or the property of such Selling Stockholder.

(iii) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental
agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with
the Shares to be sold by each Selling Stockholder hereunder,
except which have been duly obtained and in full force and
effect, such as have been obtained under the Act and such as
may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of such Shares
by the Underwriters, as to which such counsel need express no
opinion.

(iv) Assuming that the Underwriters will take
delivery of the Shares for value in good faith and without
notice of any adverse claim and that the Underwriters are not
parties themselves to any fraud or illegality affecting the
Shares, and by delivery of a certificate or certificates
therefor, the Selling Stockholders will transfer to the
Underwriters good and valid title to such shares, free and
clear of any pledge, lien, security interest, charge, claim,
equity, or encumbrance of any kind.

In rendering such opinion, such counsel may rely as to matters
of fact, to the extent proper, on certificates of the Selling Stockholders and
the representations and warranties contained in the Custody Agreement and Power
of Attorney executed by such Selling Stockholder. Such counsel also may rely
as to matters of fact, to the extent deemed proper, on certificates of
responsible officers of the Company and public officials.

(h) You shall have received an opinion, dated the Closing
Date and the Option Closing Date, from Nelson Mullins Riley & Scarborough,
L.L.P., as your counsel, with respect to the Registration Statement, the
Prospectus and this Agreement, which opinion shall be satisfactory in all
respects to you, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.

(i) The Representative shall have received from the
Accountants a letter dated the date hereof, and at the Closing Date a second
letter dated the Closing Date, in form and substance satisfactory to the
Representatives, stating that they are independent auditors with respect to the
Company within the meaning of the Act and the applicable Rules and Regulations,
and to the effect that:

(i) In their opinion, the financial statements
and schedules examined by them and included in the
Registration Statement comply as to form in all

19
<PAGE> 20
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations and are presented in
accordance with generally accepted accounting principles; and
they have made a review in accordance with standards
established by the American Institute of Certified Public
Accountants of the interim financial statements, selected
financial and operating data, and/or condensed financial
statements derived from audited financial statements of the
Company.

(ii) The financial information included in the
Preliminary Prospectus and the Prospectus under the captions
"Prospectus Summary" and "Selected Financial Data" for each of
the fiscal years ended December 31, 1992, 1993, 1994, 1995 and
1996 agrees with the corresponding amounts in the audited
financial statements included in the Prospectus or previously
reported on by them.

(iii) On the basis of a reading of the latest
available interim financial statements (unaudited) of the
Company, a reading of the minute books of the Company,
inquiries of officials of the Company responsible for
financial and accounting matters and other specified
procedures, all of which have been agreed to by the
Representatives, nothing came to their attention that caused
them to believe that:

a. the unaudited financial statements
included in the Registration Statement do not comply
as to form in all material respects with the
accounting requirements of the federal securities
laws and the related published rules and regulations
thereunder or are not in conformity with generally
accepted accounting principles applied on a basis
consistent with the basis for the audited financial
statements contained in the Registration Statement;

b. any other unaudited financial
statement data included in the Prospectus do not
agree with the corresponding items in the unaudited
consolidated financial statements from which data was
derived and any such unaudited data were not
determined on a basis consistent with the basis for
the corresponding amounts in the audited financial
statements included in the Prospectus;

c. at a specified date not more than
five days prior to the date of delivery of such
respective letter, there was any change in the
consolidated capital stock, decline in stockholders'
equity or increase in long-term debt of the Company,
or other items specified by the Underwriters, in each
case as compared with amounts shown in the latest
balance sheets included in the Prospectus, except in
each case for changes, decreases or increases which
the Prospectus discloses have occurred or may occur
or which are described in such letters; and

20
<PAGE> 21
d. for the period from the closing date
of the latest statements of income included in the
Prospectus to a specified date not more than five
days prior to the date of delivery of such respective
letter, there were any decreases in net revenues or
net income of the Company, or other items appearing
on the face of the statement of operations specified
by the Representatives, or any increases in any items
appearing on the face of the statement of operations
specified by the Representatives, in each case as
compared with the corresponding period of the
preceding year, except in each case for decreases
which the Prospectus discloses have occurred or may
occur or which are described in such letter.

(iv) They have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information specified by
you which are derived from the general accounting records of
the Company, which appear in the Prospectus and have compared
and agreed such amounts, percentages and financial information
with the accounting records of the Company.

In the event that the letters to be delivered referred to
above set forth any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that the Underwriters shall
have reasonably determined, after discussions with officers of the Company
responsible for financial and accounting matters and with the Accountants, that
such changes, decreases or increases as are set forth in such letters do not
reflect a material adverse change in the stockholders' equity or long-term debt
of the Company as compared with the amounts shown in the latest balance sheet
of the Company included in the Prospectus, or a material adverse change in
total net revenues or net income of the Company, in each case as compared with
the corresponding period of the prior year.

(j) At the Closing Date and, as to the Option Shares, the
Option Closing Date, there shall be furnished to you a certificate, dated the
date of its delivery, signed by each of the Chief Executive Officer and Chief
Financial Officer of the Company, in form and substance satisfactory to you, to
the effect that:

(i) Each of the representations and warranties of
the Company contained in Section 3 of this Agreement were,
when originally made, and are, at the time such certificate is
delivered, true and correct in all material respects;

(ii) Each of the covenants required herein to be
performed by the Company on or prior to the delivery of such
certificate has been duly, timely and fully performed and each
condition herein required to be complied with by the Company
on or prior to the date of such certificate has been duly,
timely and fully complied with.

(k) On or prior to the Closing Date, you shall have
received the executed agreements referred to in Section 5(n).

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<PAGE> 22
(l) The Shares shall be qualified for sale in such states
as you may reasonably request, each such qualification shall be in effect and
not subject to any stop order or other proceeding on the Closing Date or the
Option Closing Date.

(m) The Shares shall have been duly authorized for
quotation and shall have been approved for listing on the Nasdaq National
Market upon official notice of issuance.

(n) No Underwriter shall have advised the Company that
the Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or any supplement thereto, contains an untrue statement of fact
which, in your reasonable judgment, is material, or omits to state a fact
which, in your reasonable judgment, is material and is required to be stated
therein or necessary to make the statements therein not misleading and the
Company shall not have cured such untrue statement of fact or stated a
statement of fact required to be stated therein.

(o) The Company shall have furnished to you such
certificates, in addition to those specifically mentioned herein, as you may
have reasonably requested as to the accuracy and completeness at the Closing
Date and the Option Closing Date of any statement in the Registration Statement
or the Prospectus, as to the accuracy at the Closing Date and the Option
Closing Date of the representations and warranties of the Company herein, as to
the performance by the Company of its obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to your obligations
hereunder.

(p) The Selling Stockholders or the Attorney-in-Fact
shall deliver to the Underwriters a certificate dated the Closing Date and
executed by each Selling Stockholder or the Attorney-in-Fact to the effect that
the representations and warranties of the Selling Stockholders shall be true
and correct as of the Closing Date.

7. INDEMNIFICATION AND CONTRIBUTION.

(a) The Company will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, liabilities, expenses and damages (including any and
all investigative, legal and other expenses reasonably incurred in connection
with,and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject under
the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based in whole or in part
upon (i) any inaccuracy in the representations and warranties of the Company
contained herein, (ii) any failure of the Company to perform its obligations
hereunder or under law or (iii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus or in any documents filed under the
Exchange Act or any blue sky application or filing, or the omission or alleged
omission to state in such document a material

22
<PAGE> 23
fact required to be stated in it or necessary to make the statements in it not
misleading; provided, however, that the foregoing indemnity agreement with
respect to any preliminary prospectus or the Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if required
by law so to have been delivered, at or prior to the written confirmation of
the sale of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability; and further provided, that the Company will not be liable
to the extent that such loss, claim, liability, expense or damage arises from
the sale of the Shares in the public offering to any person by an Underwriter
and is based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to an
Underwriter furnished in writing to the Company by an Underwriter expressly for
inclusion in the Registration Statement, any preliminary prospectus or the
Prospectus. The Company acknowledges that the statements set forth under the
heading "Underwriting" in any preliminary prospectus and the Prospectus
constitute the only information relating to any Underwriter furnished in
writing to the Company by you expressly for inclusion in the Registration
Statement, any preliminary prospectus or the Prospectus. This indemnity
agreement will be in addition to any liability that the Company might otherwise
have.

(b) Each Selling Stockholder agrees, severally and not
jointly, to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of either Section 15 of
the Act or Section 20 of the Exchange Act, and the Company, its directors, its
officers who sign the Registration Statement and each person, if any who
controls the Company within the meaning of either such Section, provided,
however, that the indemnification obligation of each Selling Stockholder shall
be limited to the aggregate public offering price of the Shares sold by such
Selling Stockholder, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendment or
supplement thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only with
reference to information relating to such Selling Stockholder furnished in
writing by or on behalf of such Selling Stockholder expressly for use in the
Registration Statement or the Prospectus or in any preliminary prospectus;
provided, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus or the Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage or
liability.

23
<PAGE> 24
(c) Each Underwriter will indemnify and hold harmless the
Company, each Selling Stockholder, each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each director of the Company and each officer of the Company who
signs the Registration Statement to the same extent as the foregoing indemnity
from the Company to the Underwriters, but only insofar as losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to you furnished in writing to
the Company by you expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus. The Company acknowledges that the
statements set forth under the heading "Underwriting" in any preliminary
prospectus and the Prospectus constitute the only information relating to the
Underwriters furnished in writing to the Company by the Underwriters expressly
for inclusion in the Registration Statement, any preliminary prospectus or the
Prospectus. This indemnity will be in addition to any liability that the
Underwriters might otherwise have.

(d) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 7, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying
party will not relieve it from any liability that it may have to any
indemnified party under the foregoing provisions of this Section 7 unless, and
only to the extent that, such omission results in the forfeiture of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly
notified, to assume the defense of the action, with counsel reasonably
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election to assume the defense, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the indemnified party in connection with
the defense. The indemnified party will have the right to employ its own
counsel in any such action, but the fees, expenses and other charges of such
counsel will be at the expense of such indemnified party unless (i) the
employment of counsel by the indemnified party has been authorized in writing
by the indemnifying party, (ii) the indemnified party has reasonably concluded
(based on advice of counsel) that there may be legal defenses available to it
or other indemnified parties that are different from or in addition to those
available to the indemnifying party, (iii) a conflict of interests exists
(based on advice of counsel to the indemnified party) between the indemnified
party and the indemnifying party (in which case the indemnifying party will not
have the right to direct the defense of such action on behalf of the
indemnified party) or (iv) the indemnifying party has not in fact employed
counsel to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same

24
<PAGE> 25
jurisdiction, be liable for the reasonable fees, disbursements and other
charges of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. All
such fees, disbursements and other charges will be reimbursed by the
indemnifying party promptly as they are incurred. An indemnifying party will
not be liable for any settlement of any action or claim effected without its
written consent (which consent will not be unreasonably withheld).

(e) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 6 is applicable in accordance with its
terms but for any reason is held to be unavailable from the Company or the
Underwriters, then the Company and the Underwriters will contribute to the
total losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received by the Company
from persons other than the Underwriters, such as persons who control the
Company within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company, who may be liable for
contribution) to which the Company and the Underwriters may be subject in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and the Underwriters. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same respective
proportions as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. If, but only if, the allocation
provided by the foregoing sentence is not permitted by applicable law, the
allocation of contribution shall be made in such proportion as is appropriate
to reflect not only the relative benefits referred to in the foregoing sentence
but also the relative fault of the Company and the Underwriters with respect to
the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(d) were to be determined by pro
rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above
in this Section 7(d) shall be deemed to include, for purpose of this Section
7(d), any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), an Underwriter shall not
be required to contribute any amount in excess of the underwriting discounts
received by it (less the aggregate amount of any damages which such Underwriter
and its controlling persons have otherwise been required to pay in respect of
the same or any similar claim), and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to

25
<PAGE> 26
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 7(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 7(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer and director of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof.
Any party entitled to contribution, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution maybe made under this Section 7(d), will notify any such party or
parties from whom contribution may be sought, but the omission to notify will
not relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have under this Section 7(d). No party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).

(f) The indemnity and contribution agreements contained
in this Section 7 and the representations and warranties of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any investigation made by the Underwriters or on their
behalf, (ii) acceptance of any of the Shares and payment therefor or (iii) any
termination of this Agreement.

8. TERMINATION.

The Underwriters' obligations under this Agreement may be
terminated at any time on or prior to the Closing Date (or, with respect to the
Option Shares, on or prior to the Option Closing Date), by notice to the
Company from the Representatives, without liability on the part of any of the
Underwriters to the Company, if, prior to delivery and payment for the Shares
(or the Option Shares, as the case may be), in your reasonable judgment, (i)
trading in any of the equity securities of the Company shall have been
suspended by the Commission, by an exchange that lists the Shares or by the
Nasdaq National Market, (ii) trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall
have been suspended or limited or minimum or maximum prices shall have been
generally established on such exchange, or additional material governmental
restrictions, not in force on the date of this Agreement, shall have been
imposed upon trading in securities generally by such exchange or by order of
the Commission or any court of other governmental authority, (iii) a general
banking moratorium shall have been declared by either Federal or State
authorities or (iv) any material adverse change in the financial or securities
markets in the United States or in political, financial or economic conditions
in the United States or any outbreak or material escalation of hostilities or
declaration by the United States of a national emergency or war or other
calamity or crisis shall have occurred the effect of any of which is such as to
make it, in your reasonable judgment, impracticable or inadvisable to market
the Shares on the terms and in the manner contemplated by the Prospectus.

9. SUBSTITUTION OF UNDERWRITERS.

If any Underwriter shall fail or refuse to purchase any of the
Firm Shares which it has agreed to purchase hereunder, and the aggregate number
of Firm Shares which such

26
<PAGE> 27
defaulting Underwriter agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of Firm Shares, the other Underwriters
shall be obligated, severally, to purchase the Firm Shares that such defaulting
Underwriter agreed but failed or refused to purchase, in the proportions which
the number of Firm Shares which they have respectively agreed to purchase
pursuant to Section 1 bears to the aggregate number of Firm Shares which all
such non-defaulting Underwriters have so agreed to purchase, or in such other
proportions as you may specify; provided, that in no event shall the maximum
number of Firm shares which an Underwriter has been obligated to purchase
pursuant to Section 1 be increased pursuant to this Section 9 by more than
one-ninth of such number of Firm Shares without the prior written consent of
such Underwriter. If an Underwriter shall fail or refuse to purchase any Firm
Shares and the aggregate number of Firm Shares which such defaulting
Underwriter agreed but failed or refused to purchase exceeds one-tenth of the
aggregate number of the Firm Shares and arrangements satisfactory to the
non-defaulting Underwriters or the Company for the purchase of such Firm Shares
are not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter or the Company
for the purchase or sale of any Shares under this Agreement. In any such case
the Underwriters or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. Any action taken pursuant to
this Section 9 shall not relieve any defaulting Underwriter from liability in
respect to any default of such Underwriter under this Agreement.

10. DEFAULT BY A SELLING STOCKHOLDER.

If any of the Selling Stockholders shall fail to sell and
deliver the number of Shares that such Selling Stockholder is obligated to
sell, the Underwriters may, at their option, by notice to the Company, either
(a) require the Company to sell and deliver such number of shares of Common
Stock as to which the Selling Stockholders have defaulted, (b) elect to
purchase the Firm Shares and the Option Shares that the Company and the
non-defaulting Selling Stockholders have agreed to sell pursuant to this
Agreement, or (c) terminate this Agreement if the Company shall have refused to
sell and deliver to the Underwriters the shares of Common Stock referred to in
clause (a) of this Section 10.

In the event of a default under this Section 10 that does not
result in the termination of this Agreement, either the Underwriters or the
Company shall have the right to postpone the Closing Date or Option Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents
or arrangements. No action taken pursuant to this Section 10 shall relieve the
Company or the Selling Stockholder so defaulting from liability, if any, in
respect of such default.

11. MISCELLANEOUS.

All communications hereunder shall be in writing and, if sent
to any of the Underwriters, shall be mailed, first class postage prepaid, sent
via reliable overnight delivery service, sent by telefacsimile (and by one of
the two preceding methods), delivered by hand or

27
<PAGE> 28
telegraphed and confirmed in writing to the Representatives in care of J.C.
Bradford & Co., J.C. Bradford Financial Center, 330 Commerce Street, Nashville,
Tennessee 37201, Attention: Thomas C. Wylly, II, or if sent to the Company
shall be sent by one of the foregoing methods to the Company at 302 East
Millsap Road, Fayetteville, Arkansas 72703, Attention: Clete T. Brewer.

This Agreement has been and is made solely for the several
Underwriters' and the Company's and the Selling Stockholders' benefits and of
the controlling persons, directors and officers referred to in Section 7, and
their respective heirs, executors, administrators, successors and assigns, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" as used in this Agreement shall
not include a purchaser, as such purchaser, of Shares from an Underwriter.

This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.

This Agreement may be signed in two or more counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.

In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

THE COMPANY, EACH SELLING STOCKHOLDER AND YOU EACH HEREBY
IRREVOCABLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
CLAIM BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

You hereby represent and warrant to the Company and each
Selling Stockholder that you have authority to act hereunder on behalf of the
several Underwriters, and any action hereunder taken by you will be binding
upon all the Underwriters.

Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Selling Stockholders and you.

Very truly yours,

STAFFMARK, INC.

By:
----------------------------------------
Clete T. Brewer
President and Chief Executive Officer

28
<PAGE> 29
SELLING STOCKHOLDERS:

By: ____________________________________
___________________, Attorney-in-
Fact for each of the Selling
Stockholders identified on
Schedule II

Confirmed and accepted as of the
date first above written.

J.C. BRADFORD & CO.
MONTGOMERY SECURITIES
STEPHENS INC.
For themselves and as Representatives
of the several Underwriters

By: J.C. Bradford & Co.

By:
-----------------------------

29
<PAGE> 30
SCHEDULE I

UNDERWRITERS

<TABLE>
<CAPTION>
Number of
Name of Underwriter Firm Shares
- ------------------- -----------
<S> <C>
J.C. Bradford & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stephens Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000
=========
</TABLE>
<PAGE> 31
SCHEDULE II

SELLING STOCKHOLDERS

<TABLE>
<CAPTION>
Number of
Name of Selling Stockholder Firm Shares
- --------------------------- -----------
<S> <C>
Jerry T. Brewer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,327
Clete T. Brewer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Robert H. Janes III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,495
Bartfund I Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Donald A. Marr, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,700
Steven E. Schulte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Karla Leigh Schulte Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
John H. Maxwell, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Mary Sue Maxwell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Janice Blethen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Chad J. Brewer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
John C. & Betty L. Becker Charitable Remainder Trust . . . . . . . . . . . . . . . . . . . 47,000
Jean A. Curtis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Bradley C. Faerber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 860
Jeffrey T. Gregory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Ann F. Jaeger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,746
J. Christopher Jaeger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,746
Robert Kleven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,326
Donna Vassil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,800
---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,000
=========

</TABLE>

<PAGE> 1
EXHIBIT 5.1

[WRIGHT, LINDSEY & JENNINGS LETTERHEAD]

August 5, 1997

StaffMark, Inc.
302 East Millsap Road
Fayetteville, Arkansas 72703

Ladies and Gentlemen:

In our opinion, the 4,025,000 shares of common stock being registered
under Registration Statement No. 333-32371, when sold, will constitute legally
issued, fully paid, and non-assessable shares of StaffMark, Inc.

We consent to the inclusion of this opinion in the Registration
Statement and the reference to us under the caption "Legal Matters" in the
Prospectus included in the Registration Statement.

Very truly yours,

WRIGHT, LINDSEY & JENNINGS

<PAGE> 1
EXHIBIT 21.1

STAFFMARK, INC. AND SUBSIDIARIES
STATES OF INCORPORATION AND QUALIFICATION

STAFFMARK, INC., a Delaware corporation

SUBSIDIARIES OF STAFFMARK, INC.:

1. BREWER PERSONNEL SERVICES, INC. an Arkansas corporation.

Business Names: Prostaff Personnel, Inc., Excel Temporary Staffing,
Inc., and Professional Resources, Inc. filed in Arkansas.

2. STAFFMARK ACQUISITION CORPORATION SIX, a Delaware corporation.

A. KLEVEN TECHNICAL SERVICES, INC., A MASSACHUSETTS CORPORATION
B. THE KLEVEN GROUP, INC., A MASSACHUSETTS CORPORATION

3. GLOBAL DYNAMICS, INC., (formerly StaffMark Acquisition Corporation
Four), a Delaware corporation.

Business Name: "Global Resourcing Services, Inc." filed in Texas.

4. STAFFMARK ACQUISITION CORPORATION TWO, a Delaware corporation.

Business Names: "Flexible Personnel, Great Lakes Search Associates,
Flexible Technical, Flexible Accountants and Flexible Information
Technology" filed with the Indiana Secretary of State and Allen
County, Indiana.

5. STAFFMARK ACQUISITION CORPORATION THREE, a Delaware corporation.

Business Names: HR America filed with the Indiana Secretary of State
and Allen County, Indiana.

6. THE TECHNOLOGY SOURCE ACQUISITION CORPORATION, a Delaware corporation.

Business Names: The Technology Source Acquisition Corporation d/b/a
Technology Source, Inc. filed in Missouri.

7. STAFFMARK ACQUISITION CORPORATION FIVE, a Delaware corporation.

Business Name: "Lindenberg & Associates" filed in Missouri.

8. THE BLETHEN GROUP, INC., formerly Blethen Temporaries, Inc., a North
Carolina corporation.

Business Name: The Blethen Group, Inc. d/b/a Clinical Trial Support
Services filed in Alamance County, North Carolina.

9. MAXWELL STAFFING, INC., an Oklahoma corporation.

10. MAXWELL STAFFING OF BRISTOW, INC., an Oklahoma corporation.

11. MAXWELL/HEALTHCARE, INC., an Oklahoma corporation.

12. SQUARE ONE REHAB, INC., an Oklahoma corporation.

13. TECHNICAL STAFFING, INC., an Oklahoma corporation.

14. FIRST CHOICE STAFFING, INC., a South Carolina corporation.

15. HRA, INC., a Tennessee corporation.

A. TOM BAIN PERSONNEL, INC., a Tennessee corporation, a
subsidiary of HRA, Inc.

16. APS - ADVANCE PERSONNEL SERVICE ACQUISITION CORPORATION, a Delaware
corporation.

Business Names: Advance Personnel Service Acquisition Corporation d/b/a
Advance Personnel Service, Inc. filed in Tennessee.
<PAGE> 2
17. 533993 B.C., LTD., a British Columbia corporation.

A. MRIC - MEDICAL RECRUITERS INTERNATIONAL LTD., a British
Columbia corporation, a subsidiary of 533993 B.C., LTD.

18. STERLING HUMAN RESOURCE COMPANY, a Delaware corporation.

19. BAKER STREET GROUP, INC., a Texas corporation.

20. STAFFMARK ACQUISITION CORPORATION NINE, a Delaware corporation, d/b/a
Temp Technology, Inc. in Portland, Oregon.

21. EBIT, Inc., a Delaware corporation.

<PAGE> 1

EXHIBIT 23.2.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

August 5, 1997.

<PAGE> 2

EXHIBIT 23.2.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Memphis, Tennessee,

August 5, 1997.

<PAGE> 3

EXHIBIT 23.2.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Raleigh, North Carolina,

August 5, 1997.

<PAGE> 4

EXHIBIT 23.2.4

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

San Francisco, California,

August 5, 1997.

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-32371) of our report, which includes an explanatory paragraph due to
changes in entities, dated February 4, 1997, except for Note 3 for which the
date is February 24, 1997 and except for Note 7 for which the date is March 17,
1997, on our audit of the financial statements of Flexible Personnel Group of
Companies. We also consent to the reference to our firm under the caption
"Experts."

Coopers & Lybrand, L.L.P

Fort Wayne, Indiana

August 5, 1997